Mortgage Loan Originations Become Less Profitable

Mortgage origination profitability fell to its lowest in January 2018 as mortgage volumes responded to the rising interest rates during the month according to data in the February 2018 edition of At A Glance, a monthly reference guide and report for mortgage and housing market data released by The Urban Institute’s Housing Finance Policy Center.

Using data from Originator Profitability and Unmeasured Costs (OPUC) formulated and calculated by the Federal Reserve Bank of New York, the report found that over the last four years, OPUC has ranged from a high of $3.24 in 2016 when rates were low to around $2 between 2016 and 2018 when rates were high. However, in January 2018, OPUC stood at $1.88 which is the lowest in four years, indicating that interest rates were high during this period.

The report also includes updated figures describing GSE guarantee fees, mortgage delinquency rates, nonbank originator shares in the agency market and the composition of the mortgage insurance market.

In a trend that has continued since 2013, the origination share for nonbank loans increased for Fannie Mae, Freddie Mac, and Ginnie Mae. The report indicated that Ginnie Mae’s nonbank share edged up to a new high of 81 percent in January 2018, while nonbank originator shares for Freddie Mac and Fannie Mae both moved back towards the historic highs reached in November 2017, after a dip in December. The nonbank originator share was higher for refinance loans than for purchase loans across all three agencies.

According to the report, outstanding mortgage-backed securities in the agency market totaled $6.40 trillion of which 43.8 percent securities were for Fannie Mae, 27.4 percent for Freddie Mac, and 28.9 percent were for Ginnie Mae. Ginnie Mae has had more outstanding securities than Freddie Mac since May 2016.

Access to credit, especially for borrowers with low FICO scores remained tight even as the housing market values increased driven by growing household equity, the report noted.

The report noted that delinquencies in the hurricane-impacted areas of Texas, Florida, and Puerto Rico continued to rise during the last quarter, with the 90-day delinquency rates touching higher for Puerto Rico than it did for Florida or Texas.

While these rates are expected to decline in this quarter as many of these loans get resolved through reperformance, the report expects the problem to continue in Puerto Rico where only 40 percent of homes have mortgages compared with 64 percent in the U.S.