This One Thing Could Destroy the Mortgage Industry As We Know It (Loan Originators Brace For Fallout)

The net gain on each loan originated by independent mortgage banks and mortgage bank subsidiaries plummeted 60% in the fourth quarter of 2015 due to the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule in October.

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(http://www.housingwire.com/articles/36541-trid-slashes-independent-mortgage-banks-profits-by-60)

 

Net gains only reached $493 on each loan they originated in the fourth quarter, down from a whopping $1,238 per loan in the third quarter of 2015, the Mortgage Bankers Association reported in its Quarterly Mortgage Bankers Performance Report.

“Production profits dropped by over 60% in the fourth quarter of 2015 compared to the third quarter,” said Marina Walsh, MBA’s vice president of industry analysis. “With the Know Before You Owe rule going into effect last October 3rd and declining production volume compared to the third quarter of 2015, mortgage bankers saw their total loan production expenses climb to $7,747 per loan, from $7,080 per loan in the third quarter.”

Walsh added, “The fourth quarter marked the second highest level of production expenses per loan since the inception of our report in the third quarter of 2008.”

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – surged to $7,747 per loan in the fourth quarter of 2015, jumping from $7,080 in the third quarter of 2015.

shutterstock_131118848Furthermore, personnel expenses averaged $5,131 per loan in the fourth quarter of 2015, up from $4,674 per loan in the third quarter.

However, Walsh said, “The average production volume per company was nearly double the first quarter of 2014, when production expenses reached a study-high of $8,025 per loan. The increase in total production expenses per loan in the fourth quarter of 2015 cannot be explained solely by volume fluctuations.”

Average production volume tumbled to $538 million per company in the fourth quarter of 2015, down from $614 million per company in the third quarter of 2015.  To put this in perspective, in the first quarter of 2014 when per-loan production expenses were at a study-high, the average production volume was $274 million per company.  Also, since the inception of the Performance Report in the third quarter of 2008, production volume per company has averaged $332 million.

The volume by count per company also fell, averaging 2,265 loans in the fourth quarter of 2015, down from 2,609 loans in the third quarter of 2015.

In comparison, in the first quarter of 2014 when per-loan production expenses were at a study-high, the average volume by count was 1,238 loans per company.  Since the inception of the Performance Report in the third quarter of 2008, the quarterly production count has averaged 1,491 loans.

Other key elements that contributed to the making of the net gain number include:

Total production revenue (fee income, secondary marking income and warehouse spread) stayed flat at 362 basis points in the fourth quarter of 2015, compared to the third quarter.

The “net cost to originate” shot up to $6,163 per loan in the fourth quarter of 2015, up from $5,549 in the third quarter.

The “net cost to originate” includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

shutterstock_71006383Productivity slightly decreased to 2.4 loans originated per production employee per month in the fourth quarter of 2015, down from 2.5 in the third quarter.

Including all business lines, 72% of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2015, down from 86% in the third quarter of 2015.

In addition, the average pre-tax production profit was 22 basis points (bps) in the fourth quarter, compared to an average net production profit of 55 bps in the third quarter of 2015.  Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 53 bps.

The purchase share of total originations, by dollar volume, was 66% in the fourth quarter of 2015, down from 70% in the third quarter of 2015.  For the mortgage industry as a whole, MBA estimates the purchase share at 53% in the fourth quarter of 2015. The jumbo share of total first mortgage originations by dollar volume was 9.34% in the fourth quarter compared to 9.09% in the third quarter.

The average loan balance for first mortgages increased to $238,481 in the fourth quarter of 2015, up from $238,246 in the third quarter.

Repeated evidence shows the impact of TRID was real, whether the reports were anecdotal or statistical.

Back in October, Walsh talked to HousingWire on what is the exact cost of compliance on mortgage originations?

To answer the question, the she was able to compare the fourth quarter of 2012 to the first quarter of 2015 since the quarters share similar volume periods.

The chart shows there is a difference of nearly $1,600 between the two quarters.

Walsh noted that there has to be an explanation behind this although it’s not a cut and dry answer.

Ultimately, Walsh said, “It has become more expensive to be a originator. There has to be a reason. Either you’re processing, underwriting and closing costs are going up or your sales costs are going up.”

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Home Flipping Increases in 75 Percent of U.S. Markets (Republicans Angered as White House Takes Credit)

Realtytrac released its Year-End and Q4 2015 U.S. Home Flipping Report, which shows that 179,778 U.S. single family homes and condos were flipped in 2015, 5.5 percent of all single family home and condo sales during the year.

The 5.5 percent share of U.S. home flips in 2015 was up from a 5.3 percent share in 2014, marking the first annual increase in the share of homes flipped following four consecutive years of decreases. The share of homes flipped in 2015 increased from the previous year in 83 of 110 U.S. metropolitan statistical areas nationwide analyzed for the report (75 percent).

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(http://www.realtytrac.com/news/real-estate-investing/2015-year-end-and-q4-u-s-home-flipping-report/)

 

For the report, a home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by RealtyTrac in more than 950 counties accounting for more than 80 percent of the U.S. population (see full methodology below).

“As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac. “Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008.”

There were 110,008 investors or entities that completed at least one home flip in 2015, the highest number of home flippers since 2007, when there were 130,603 home flippers. The peak in the number of active home flippers was in 2005, with 259,192. There were 1.63 home flips per investor in 2015, the lowest ratio of flips per investor since 2008.

“More inexperienced home flippers with a smaller financial cushion could be a sign of an over-speculative market, but the data indicates that flippers in 2015 continued to operate within relatively conservative margins,” Blomquist continued. “Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and re-sold by the flipper at a 5 percent premium above estimated market value.”

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Share of homes flipped in 2015 above 2005 levels in 11 percent of markets

 

The 5.5 percent share of U.S. homes flipped in 2015 was still well below the peak of 8.2 percent of U.S. homes flipped in 2005.

Counter to the national trend, the share of homes flipped in 2015 was above 2005 levels in 12 of the 110 metro areas (11 percent) analyzed in the report, including Pittsburgh (19 percent above 2005 levels); Memphis (18 percent above 2005 levels); Buffalo, New York (12 percent above 2005 levels); San Diego (4 percent above 2005 levels); Seattle (4 percent above 2005 levels); Birmingham, Alabama (4 percent above 2005 levels); and Cleveland (3 percent above 2005 levels).

“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where the share of homes flipped in 2015 was down from 2014 despite being above 2005 levels. “The problem with a rise in home flipping is that these sales artificially inflate home prices, making housing even less affordable for buyers and increasing the risk of a bubble. I’m happy to see that the percentage of home flipping sales in Seattle does not exceed the national average and that they’re down from a year ago. This makes sense given our affordability constraints and lower potential for profits for home flippers.”

Metro areas with the biggest year-over-year increase in share of flips were Lakeland, Florida (up 50 percent); New Haven, Connecticut (up 45 percent); Jacksonville, Florida (up 41 percent); Homosassa Springs, Florida (up 40 percent); and Akron, Ohio (up 37 percent).

“We continue to see distressed properties funnel through the pipeline in South Florida, which makes it ripe for investors to profit in a strong selling market,” said Mike Pappas, CEO and president at the Keyes Company, covering the South Florida market. “There are always sellers that will discount for a quick cash sale and open the door for astute investors to make a good return by repositioning the property.”

The Miami metro area had the most homes flipped of any market nationwide in 2015, with 10,658, representing 8.6 percent of all Miami-area home sales for the year and up 4 percent as a share of all sales from 2014.

 

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Top 20 Housing Markets For The Start Of 2016 (number 3 will surprise you)

Although homebuying in January followed the seasonal trend, with fewer homes on the market and slow sales movement, the housing market is expected to pick up heading into the spring homebuying season. 

According to Realtor.com chief economist Johnathan Smoke, their initial readings on January “affirm the positive growth we expect to see in the residential real estate market in 2016.”

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(http://www.housingwire.com/articles/36176-here-are-the-hottest-top-20-housing-markets-for-the-start-of-2016)

 

“Our traffic, searches and listing views exhibited the January ‘pop’ we saw last year, which made for a strong spring. In addition, a large number of prospective buyers have been telling us since the second half of 2015 that they plan to purchase in the spring and summer of 2016,” Smoke added.
Realtor.com noted in the report that the median age of inventory is now 100 days, which means it’s taking homes 6% longer to sell in January than in December. This is still 4% faster when compared with January 2015. The median listing price for January is estimated at $227,000, remaining virtually flat over December, but still up 8% year over year, the report said.
HERE ARE THE TOP 20 HOUSING MARKETS OF 2016

20. Fort Wayne, Indiana

19. Tampa, Florida

18. Santa Cruz, California

17. Midland, Texas

16. Detroit, Michigan

skyline

15. Modesto, California

14. Yuba City, California

13. Palm Bay, Florida

12. Oxnard, California

11. Santa Rosa, California

10. Los Angeles, California

California

9. Denver, Colorado

8. Stockton, California

7. Nashville, Tennessee

Tenn

6. Sacramento, California

5. San Diego, California

4. Vallejo, California

3. Dallas, Texas

Reunion Tower Dallas

2. San Jose, California

1. San Francisco, California

san francisco houses

 

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