• HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT
RECURSION CO
  • HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT
BLOG

Mortgage Lender Strategies in a High Interest Rate Regime

8/31/2022

 
The rise in mortgage rates is having a profound impact on lender strategies in the mortgage market. These can be seen by looking at trends in the use of Third-Party Originators (TPOs). Some lenders, such as Quicken, traditionally work almost exclusively with loans originated in-house, while others, such as PennyMac, primarily accumulate and package loans produced by other lenders. Most larger institutions do some of both. The advantage of acquiring loans from a mortgage broker or correspondent in addition to origination is that the lender has flexibility regarding what method they use to turn volumes up and down to fit its strategy and market views. In both cases, there are costs to increasing and cutting capacity. As the market grows, bringing on new employees carries expenses such as training, while building trusted new external relationships can also be time-consuming. As markets contract, there are direct costs to layoffs, while unwinding networks can impact relationships that can be difficult to rebuild when the cycle turns. Of course, in a sufficiently bad market, the company may have no choice but to cut back.
​
Recently there have been some high-profile announcements of layoffs across the mortgage lending space, but through the first half of 2022, the reported decline in employment has been modest. But employment tends to lag interest rates, so further declines cannot be ruled out.
Picture
This is a good indicator of current housing activity to watch in the current market. But it’s not the whole story. There is also information to be gained from observing shifts in acquisition channels. Here is the recent trend of the GSEs:
Picture
run underlying query
As can be seen, when the housing market boomed following the onset of the pandemic, the surge in hiring led to a corresponding jump in the share of loans delivered to the GSEs, at least in part based on the idea that the surge in activity would persist to some degree. As interest rates have taken off and volumes decline, firms have been cutting back their retail activity to a greater degree than that of their TPOs, bringing the correspondent/retail share close to its pre-pandemic levels. What is interesting is that employment appears to be more sensitive to market conditions than the structure of network relationships, at least during the pandemic.
​
To see if this result is robust across various mortgage types, here are the same charts for FHA and VA:
Picture
run underlying query
While the degree of mean reversion in channel shares for the GNM programs is so far less than that observed for the GSEs, the overall picture is quite similar.
​
Of course, much more research can be conducted, looking at banks vs. non-banks, big lenders vs. small lenders, the role of underwriting standards in this analysis and more.
From a corporate strategy perspective, firms can use this information to compare their strategies to market aggregates and individual competitors, broken down by several factors, including geography. Of interest along these lines are recent announcements by significant lenders that they are completely exiting from the correspondent channel[1].

[1] How Wells Fargo's correspondent exit may impact the mortgage industry - National Mortgage News,
After $223M loss in Q2, LoanDepot closes wholesale channel - HousingWire
Recursion is a preeminent provider of data and analytics in the mortgage industry.
Please contact us if you have any questions about the underlying data referenced in this article.

    Archives

    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    May 2019
    March 2019
    February 2019

    Tags

    All
    Affordability
    ARM
    Bank\Nonbank
    Borrower Assistant Plan
    Cash Window
    Climate Change
    CMBS
    CMO
    Conforming Loan
    Conventional Loan
    COVID 19
    CPR\CDR\CRR\CCR
    Credit Score\DTI\LTV
    CRT\CAS\STACR
    Delinquency
    Early Buyout
    ESG
    ET Pools
    Fannie Mae
    Fed
    FHA
    FHFA
    Forbearance
    Foreclosure
    Foreign Investor
    Freddie Mac
    Ginnie Mae
    Green Loans
    HECM
    HELOC
    HMDA
    HUD
    LMI
    Manufactured Housing
    Modified Loans
    MSR
    Multifamily
    Occupancy Type\NOO
    Partial Claim
    Payoff
    PIW
    Prepayment
    Purchase Loans
    Recursion In News
    Refi Loans
    Reperforming
    RG Pools
    Rural Housing
    Single Family
    Special Eligibility Program
    TBA Market
    TIC
    TPO
    UMBS
    US Treasury
    VA

RECURSION

SOLUTIONS ​
Recursion Analyzers
​
Mortgage Company Data
Recursion DataCloud
Customized Solutions


ABOUT US  ​
Overview
​Our team
CLIENT LOGIN   ​
Recursion Analyzers

CONTACT

224 West 30th St., Suite 303, New York, NY 10001
Contact Us

Picture
Copyright © 2022 Recursion, Co. All rights reserved.​
  • HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT