Wells Fargo is in the process of changing where residential loans fit into the bank’s overall business. The company’s CEO cited GSE mortgages as a product that presents risk to the bank.
The rapid increase in interest rates seen in the first quarter took a big bite out of income from production and helped to goose servicing earnings. And while a downturn in originations was expected this year, it could be worse than expected.
According to new research paper, nonbanks use their MSRs to help fund operations in a rising rate environment, resulting in stronger originations in comparison to banks.
The expanded-credit market was the only sector to see originations increase in the first quarter. The products accounted for 2.2% of total mortgage originations. (Includes data chart.)
Participants in the non-agency market note that the loans are more difficult to underwrite than typical agency mortgages. But given that agency refi business is falling, there’s still plenty of business to be had in the non-agency space.
Impac increased its emphasis on non-QM lending in the first quarter of 2022 and ended up taking a loss. Officials at the nonbank said hedging and other activities couldn’t overcome volatility in the non-QM market.
The SEC has a proposed rule that would mandate climate-related disclosures. The Federal Housing Finance Agency and federal banking regulators are also incorporating climate-change assessments.
Rising interest rates helped to push up income tied to mortgage servicing rights more than they reduced income from originations among a group of publicly-traded nonbanks. Results varied to some extent, with one large mortgage company even taking a loss in the quarter. (Includes data chart.)
If projections by the MBA are correct, interest rates for mortgages are levelling off, which should relieve some of the pressure lenders are facing on originations and profit margins.