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Mortgage originations are soaring but bank's are not reflecting this rise in their portfolios, which are suffering from new tax policies, fluctuating interest rates, and regulatory changes in mortgage lending.
The shared frustration among many mortgage bankers in today's housing market consists of concerns as to why their mortgage loan portfolios remain stagnant while originations keep rising.
Equifax's National Consumer Credit Trends Report showed that total mortgage originations increased to $1.2 trillion through the first nine months of 2015. The data also found that first mortgage originations rose 63 percent year-over-year, home equity installment loan originations have increased 20 percent, and HELOCs rose 23.3 percent to a new seven-year high.
However, banks are not experiencing the same growth with their mortgage portfolio. Total mortgage and home equity balances remained at $8.84 trillion at the end of September, almost the same number for the last 18 months, the Equifax data showed.
"We have huge growth in mortgage originations with nearly stagnant mortgage balances, which is seemingly illogical," said Amy Crews Cutts, chief economist at Equifax. "The reasons are many, including changes in tax policy, fluctuations in interest rates, and regulatory changes affecting mortgage lending."
According to Cutts, there are a number of reasons for this vast difference, but the majority of it rests on first mortgage balances. These are the largest portion of total mortgage balances that have remained steady for a long period of time.
"Across the nation, we have seen growth in total credit that mirrors the overall improvement of the U.S. economy," Cutts said. "The only exception is mortgage debt, which has remained tepid despite a lively originations market."
Cutts identified several other contributors to sluggish mortgage portfolios including:
Loan payoffs Buoyed by an improved economy and household finances, homeowners have been paying down debt faster through cash-in refinancing or by curtailing their debt by adding extra dollars to each month's payment.
Mortgage refinancing Consumers continue to refinance existing mortgage debt into lower rates and shorter terms also putting downward pressure on overall mortgage debt.
Severe derogatory As loans at the end of the foreclosure process are converted to bank-owned real estate, the amount of overall mortgage debt is reduced. The severe derogatory rate (as a share of balances) on first mortgages falling to 4.5 basis points (bps) in September, compared to 6.7 bps a year ago. Severe derogatories are now at the lowest level since August 2007 as a share of both outstanding loans and balances.
Home Purchase Activity In 2014 changes in federal tax policy removed the exemption on short sale debt forgiveness, which suppressed overall homes sales. Sales have recovered in 2015 but they are barely covering principal repayments rather than driving mortgage debt higher.
