Mortgage Application Review for the Week Ending May 6
Mortgage application activity index
Every week, the MBA (Mortgage Bankers Association) puts out an index of mortgage application activity. Mortgage applications are relevant to a number of industries including banks and non-banks. They’re also relevant to mortgage REITs including Annaly Capital Management (NLY) and American Capital Agency (AGNC). Mortgage applications also relate to homebuilders such as KB Home (KBH), Lennar (LEN), and Toll Brothers (TOL).
Series overview
This series breaks down the various indexes and helps you learn what insights you can glean from them. If you’re a bank, you’re looking at these indexes and trying to determine whether you’re competitive in all of the segments where you want to be competitive. If you’re a non-bank, you might be looking to find out if you’re gaining 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 fall slightly
During the week ending May 6, 2016, the average 30-year fixed rate mortgage fell by 5 basis points from 3.63% to 3.58%. The ten-year bond yield, of which a proxy can be traded through the iShares 20-year bond fund (TLT), fell by 5 basis points. Mortgage rates have been much less volatile than the ten-year bond—it has been trading with incredible volatility. Since the Fed raised the federal funds rate by 25 basis points at its December Federal Open Market Committee meeting, the yield on the ten-year bond has fallen by 52 basis points as of May 6, 2016.
Mortgage originators continue to deal with regulators
In early October, the CFPB (Consumer Financial Protection Bureau) officially implemented the TRID (TILA-RESPA Integrated Disclosure) rule—part of the CFPB’s “Know Before You Owe” rollout. As things stand, TRID added incremental regulatory burdens to originators such as Nationstar Mortgage (NSM), Wells Fargo (WFC), and JPMorgan Chase (JPM). TRID ended up throwing a wrench in the mortgage origination business. The jumbo securitization market was brought to a halt. TRID violations are putting smaller originators out of business.
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