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Mortgage lenders with diverse pipelines had better fourth-quarter results



Despite fourth-quarter mortgage originations Same year-on-yearA Morningstar DBRS review found that non-bank lenders that can offer products in a variety of ways can grow their business during this difficult period.

“In addition to affordability challenges, seasonality and competition have impacted sales and pricing,” said the report from Shaima Ahmadi, assistant vice president, Financial Institutions Ratings, North America. “However, on an individual company basis, companies with omnichannel organizational models continue to Growth originates from [the fourth quarter] Because they can capture a higher market share than companies with less diverse channels and more modified models. “

Ahmadi said top mortgage lenders have benefited by restructuring their operations and shifting strategies to capture more buying business.

A transformation is taking place that may not go well Finance in the United Statesat one time Multi-channel forward lender. After several previous shifts in strategy, the company chose to focus on reverse mortgages.As part of this strategy, it Acquisition of American Consulting Groupwhich helped push FOA to a 40% market share in this segment.

“Despite the market share gains, FOA’s reverse mortgage origination volume fell significantly by 56% year-over-year in Q4 2023 when excluding forward organizations in Q4 2022,” Ahmadi noted.

“Meanwhile, Rithm Capital Corp. has Multiple acquisitions of mortgage servicing and alternative asset management businesses In recent years, as part of the company’s strategic transformation into a real estate asset management company. The company also continues to diversify its mortgage products by adding complementary services. “

The Mortgage Bankers Association’s fourth-quarter industry profitability survey found that independent mortgage bankers and bank mortgage subsidiaries, whether publicly held or privately held, The average loss per loan was $2,109.

Additionally, servicing was a net financial loss for the group of $24 per loan, while operating income for the function excludes amortization, gains/losses on the valuation of servicing rights (net of hedging gains/losses), and gains on block sales /loss, $108 per loan.

Mortgage servicing rights proved to be a double-edged sword in the fourth quarter. Companies report fair value losses on their MSR portfolios – a requirement for mark-to-market accounting, Tied to potential advance payments – But service fee income increased.

The portfolio of publicly traded nonbank lenders tracked in Morningstar’s DBRS report grew 6% year over year, but that was not in line with Mr. Cooper’s 14% gain. Active in bulk purchasing marketRocket fell 5%, United Wholesale Mortgage fell 4%; UWM has always been a strategic seller of service rights, as its risk management strategyexecutives pointed out on the fourth-quarter earnings call.

FOA actually grew by 38%, an even bigger increase, but that was mostly inverse services acquired in the AAG deal, and its portfolio is by far the smallest of the nine listed companies.

Although its portfolio is now smaller, Rockets buy MSR at high interest rate for potential refinancing opportunities.

“Given current mortgage rates, borrowers have little incentive to refinance,” Ahmadi said. “However, some firms have said they expect when refinancing activity rebounds in real terms, Interest rates fell below 6%.While MBA believes rates will fall below that level, Fannie Mae’s latest forecast calls for rates to reach that level by the end of next year.

For the group, losses narrowed as higher sales margins were partially offset by lower sales at origin.

MBA Survey reported that gross sales profit margin (including fee income, net secondary marketing income and warehouse spreads) in the fourth quarter was 334 basis points, up from 329 basis points three months ago.

Keefe, Bruyette & Woods analyst Bose George said in an April 1 survey note: “Given the negative impact seasonality typically has on the fourth and first quarters, we expect margins to continue to be under pressure in the first quarter. .” The first quarter could be flat or down. Volume should be low again Seasonality associated with the quarter as well as an increase in average mortgage rates. “

Several public companies also reported significant one-time charges, including Pennymac Financial Services, which Recorded expenditures of $158.4 million From a mortgage servicing technology arbitration ruling in favor of Black Knight (now part of Intercontinental Exchange), including Allegations of breach of contract and misappropriation of trade secrets.

Meanwhile, Mr. Cooper’s Cybersecurity incidents in November 2023 Its performance reached US$27 million.

Ahmadi also pointed out that the leverage ratio of non-bank institutions in the fourth quarter was higher year-on-year, and debt levels increased slightly, but this was mainly due to financial losses eroding the company’s equity.

“period [the fourth quarter]non-bank mortgage companies are active in the high-yield market, Raise unsecured capitalAhmadi said: “The funds are partly used to repay debt maturing in 2025, and we are positive on their credit profile. In fact, the unsecured debt issuance improves the non-profit sector by reducing the burden on the balance sheet.” Financial Flexibility for Bank Mortgage Companies.”

Both Rocket and Pennymac Mortgage Trust were able to reduce leverage, but FOA’s debt-to-equity ratio increased to 97.8 times from 49.7 times a year ago, while Ocwen’s debt-to-equity ratio was 27.2 times, compared with 22.9 times a year ago.





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