Although interest rates have been at historical lows, they are significantly up from 2012 lows. Not only has this caused many eligible refinancers to shy away from the market, but originators' profits are also suffering.
A report from Urban Institute [1] found that originator profitability, which is a calculation from the Federal Reserve Bank of New York of the price at which the originator actually sells the mortgage into the secondary market and adds the value of retained servicing as well as points paid by the borrower, has been in the narrow range of 2.04 to 2.70 since 2014, and stood at 2.6 in February 2016.
"As interest rates have risen from the lows in 2012, and fewer borrowers find it economical to refinance, originator profitability is lower," Urban Institute said.
The report continued, "When originator profitability is high, mortgage rates tend to be less responsive to the general level of interest rates, as originators are capacity-constrained. When originator profitability is low, mortgage rates are far more responsive to the general level of interest rates."
Urban Institute also reported that first lien originations in first three-quarters of 2015 totaled approximately $1,350 billion. Portfolio originations made up 31 percent of this total, the data showed. Meanwhile, the GSE share fell 1 percentage point year-over-year point to 46 percent, showing the decrease in FHA market share due to the FHA premium cut. FHA and VA and private label originations account for 23 percent and 0.8 percent, respectively.
In January 2015, [2] the Federal Housing Administration [3] (FHA) announced a reduction of 0.50 percent to its annual mortgage insurance premium.
The FHA also noted that there would be positive benefits for middle-class and lower-income homebuyers, particularly first-time buyers, but this may not necessarily be the case according to data from the Urban Institute.
"This step is part of the President’s broader effort to expand responsible lending to creditworthy borrowers and increase access to sustainable rental housing for families not ready or wanting to buy a home," said The White House Office of the Press Secretary.
Click here [1] to view the full report.