Our regular readers will be aware that an ongoing theme is the collapsing bank share of mortgage deliveries to the Agencies. Our recent monthly download shows that the bank share of deliveries to the GSEs fell sharply again in December, collapsing by over 7.0%(!) from November to a record low 22.3%. A year earlier this figure stood at 41.7%. The plunge witnessed over the past year marked an acceleration in a long-term trend, as banks face a heavier regulatory burden relative to nonbanks, and as nonbanks have made inroads into the market through their development of superior technology interfaces with their clients. Covid-19 has served to accelerate this trend by pulling customers out of bank branches and putting them in front of their laptops and smart phones.
The latest drop incentivized us to dig a little deeper; we didn’t have to peer too deep to find an interesting result. Below finds a bank of the bank share of GSE deliveries, and the same chart excluding Wells Fargo and JP Morgan Chase.
As we have commented several times, the Federal Reserve Z.1 data is a fine source of information on long-term financial market trends. This post looks at trends in ownership of single-family mortgage risk. The chart below shows this distribution from Q1 2007 to Q3 2020:
So once again we look at the theme of 2021 as a transition year. A lot of the year will be spent peering at the data to tease out emerging trends as we head towards the new normal.
The discernment of new trends requires the use of new data, and new tools. We have recently brought into the Recursion data set FHA Neighborhood Watch data, which was discussed previously in the context of partial claims. These are the suspended mortgage payments for loans in forbearance that are rolled into a second lien, repaid only when the loan is extinguished. This is particularly useful for tracking the financial burden of forbearance by servicer. To accomplish this in a comprehensive manner, FHA releases this data for all endorsed loans. Using this data, we can examine trends in all loans vs those securitized in Ginnie Mae pools. Our data for the FHA Neighborhood Watch extends back only to April 2020, but the last eight months have been an interesting period in mortgage markets.
Recursion data was quoted in the January 5th, 2021 Debtwire article on GNM Early Buyouts (EBOs). The author used Recursion data to support his assertion that GNM EBO supply is going up. The total CDR, (Constant Default Rate) the involuntary prepayment speed, jumped to 5.4% from 4.9% for nonbank servicers in December 2020 compared to November 2020.
The role of the Federal Reserve in the mortgage market is an ongoing theme in this blog, dating back to the early days of the Covid-19 crisis. Besides the level of short-term rates, when we think about the Fed, we consider its direct intervention through the outright purchases of MBS. A common view of this “QE” policy can be seen in charts such as:
Recursion Co’s Chief Executive Officer Li Chang will give a talk sponsored by PyData Chicago Group, the educational arm of the NumFOCUS non-profit organization on January 21st. Li will introduce how Recursion applies big data technology on Amazon Cloud to drastically cut down data processing time, reduce users’ costs, and bring transparency to the financial markets.
More details can be found at https://www.meetup.com/PyDataChi/events/275326825/
While the single-family housing market is booming, the trend in the multifamily market is much more nuanced. Over the 3 ½ year period from July 2017 to December 2020, new supply as measured by housing starts was in a steady-to-modestly rising trend. This changed with the onset of the Covid-19 pandemic: