Is good money leaving the mortgage market?
The Financial Times ran a (metered paywall) op-ed on the drying up of profits in the mortgage lending space. While the columnist, Jim Dizard, expressions a few misconceptions about our industry,
the premise is solid: Mortgage money is starting to dry up.
While most lenders don’t retain servicing, Dizard is correct in that the good days of easy money may be settling into our rearview mirror.
Quoting mortgage analyst R. Christopher Whalen: “You were making money right after the close and after the sale [of mortgages], which is not normal. Usually you make it on servicing fees.”
“This is a feast or famine business,” says Whalen, who forecasts mortgage volumes might fall by 40 percent this year. “We [the mortgage banks] increased headcount by 50 percent over the last 12 months. Last year, we were adding capacity so quickly that nobody thought about expense management. Now they are thinking. Volume is slowing and profit per loan is down too.”
Will the glory days return? Dizard doesn’t think so.
“A lot of stars will have to align for that to come true,” he writes. “While there is a structural demand for housing in the US, costs are rising for would-be homeowners. For example, an index of the price of lumber is nearly four times’ last year’s low. Builders are pressed to find skilled construction workers. Planning restrictions choke new home building that would increase supply to damp price rises. The easy money in residential mortgage banking has probably already been made.”
acquire 15-year fixed-rate mortgages, less likely to acquire adjustable-rate mortgages, and less likely to acquire loans to first-time homebuyers.
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More Whalen: FHFA leader is “laughing stock”of housing finance
It appears that being interviewed by the FT wasn’t enough for Whalen; he had more to weigh in andpublished to his personal blog, yesterday.
In that post, Whalen speaks to an anonymous Wall Street banker and the two toss their thoughts back and forth with aplomb. Whalen, for his part, did not have nice things to say about Mark Calabria, the head of the FHFA (under the current and previous administration, quite a feat).
“We’re told that he basically makes decisions without consulting the career staff at FHFA or the GSEs,” Whalen said of Calabria. “ The decision last year to impose the 50bp tax on refinance transactions, for example, came with no warning to conventional issuers or the GSEs.”
“He is at once the laughing stock of the housing finance community, but is also a huge problem. Look for loan repurchase demands from the GSEs as Mark's next big idea…. Servicers face the cost of default mitigation, on the one hand, and prepays on the other. Is this a perfect storm for IMBs?”
Here’s how the anonymous banker elaborated on the situation:
“The fundamental problem is that the politicians and consumers think that the servicers all have money set aside to pay for the CARES Act and other types of debt payment holidays. The regulators too at FHFA and FHA assume that there are piles of cash just sitting there ready to be tapped in time of emergency. But there is no cash. The disconnect in Washington comes from not understanding the difference between a bank and a finance company. IMBs don’t have internal deposit-driven liquidity. Capital is an afterthought. They live on cash and available financing.”
Whoa, did the outlook just get a little darker in here???
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Mastercard muscles-in on the digital identity game
Don’t have time to build up your business? Not a problem if you can buy into it, right?
That’s exactly what Mastercard just did with the purchase of Ekata for $850 million.
“The shift to a more digital world requires real solutions to secure every transaction and instill trust in every interaction,” said Ajay Bhalla, president of cyber and intelligence solutions at Mastercard in a statement. “With the addition of Ekata, we will advance our identity capabilities and create a safer, seamless way for consumers to prove who they say they are in the new digital economy.”
Ekata’s tech helps their clients identify good consumers and businesses as well as any bad actors in real-time during online account opening, payments and a variety of other digital interactions.
Ekata's identity verification data, machine learning technology and global experience combined with Mastercard's fraud prevention and digital identity programs will help accurately identify customers, quickly.
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