Snapshot Of Mortgage Lending: Mortgage Applications Review (Part 1 of 4)
Every week, the Mortgage Bankers Association, or MBA, puts out an index of mortgage application activity
Mortgage applications are relevant to a number of industries—from banks to non-banks, to mortgage REITs including Annaly Capital Management, Inc.(NLY) and American Capital Agency Corporation (AGNC), to homebuilders such as KB Home (KBH), Lennar Corporation (LEN), and Toll Brothers, Inc. (TOL).
This series breaks down the different indices and helps you learn what insights you can glean from them. If you’re a bank, you’re looking at these indices and trying to determine whether you’re competitive in all the segments you want to be competitive in. If you’re a non-bank, you might be looking to see if you’re gaining share or losing share.
If you’re a mortgage REIT, you’re focusing on the refinance index and what it might mean for prepayments going forward. If you’re a homebuilder, you’re watching the purchase index as a way to gauge future demand.
Mortgage rates rise as bonds yields increase
The average 30-year fixed-rate mortgage rose 14 basis points, from 3.92% to 4.14%. The ten-year bond yield rose 15 basis points. Mortgage rates had spent most of the summer stuck around 4.25% and only recently acknowledged the strong bond market rally.
Mortgage banking has become a lot more competitive as rates have increased. The refinance business has fallen off a cliff, and bankers are cutting employees and rates. Mortgage originators are now taking more risk and doing loans they would have declined a year ago. This partially explains why mortgage rates overall aren’t moving despite the bond market rally. This is affecting REITs that have banking exposure, including PennyMac Mortgage Investment Trust (PMT), Nationstar Mortgage Holdings, Inc. (NSM), and Redwood Trust, Inc. (RWT). As well, Ocwen Financial Corporation (OCN) is facing regulatory scrutiny.
As rates have stabilized, they’ve helped even agency REITs with heavy leverage and duration exposure such as Annaly Capital and American Capital Agency.
Browse this series on Market Realist: