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MBA refinance index back to lows of 2018 – The Daily Tearsheet


Vital Statistics:

  Last Change
S&P futures 3,932 -18.25
Oil (WTI) 110.40 0.59
10 year government bond yield   2.73%
30 year fixed rate mortgage   5.32%

Stocks are flattish this morning on no real news. Bonds and MBS are flat as well.

Rates have been falling the past few days, which seems to be a return to the “risk off” mentality where investors sell stocks to buy bonds. Regardless of the reason, mortgage rates are beginning to come down which is good news for borrowers. This might be a good time to wake up some borrowers. The latest economic data has been somewhat subdued, which helps the situation. We are nowhere near recessionary territory for this year, but if growth is slowing that takes some pressure off the Fed.

The FOMC minutes will be released today at 2:00 pm. The minutes are usually not market-moving but with the bond market so skittish they might take on more importance.

Mortgage applications fell 1.2% last week as purchases increased by 0.2% and refis fell by 4%. “The 30-year fixed rate declined for the second straight week to 5.46 percent but remains well above what borrowers were used to over the past two years,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Most refinance borrowers continue to remain on the sidelines as a result, and refinance applications have fallen in nine of the past 10 weeks. Compared to January 2022, refinance activity is down 66 percent.” You can see we are at the lows of early 2018 on the refi index.

Durable Goods orders rose 0.4% in April, which was a deceleration from March. Ex-transportation (which tends to be volatile) they rose 0.3%. This is further evidence that the Fed’s actions to slow the economy have working.

You don’t have to look at the charts of the major mortgage bankers (Mr. Cooper notwithstanding) to know that profits fell in the first quarter. The MBA Mortgage Bankers Performance Report showed that average pretax profit was only 5 basis points, which is well below the 55 basis point average since 2008. Rising costs were the big driver.

“It was a challenging mortgage market environment in the first quarter of 2022, with rising mortgage rates and low housing inventory resulting in lower production volume,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “In addition to cost increases, productivity slipped for both sales and fulfillment staff “Furthermore, pull-through rates of closings to applications declined by 5 percentage points in the first quarter, affecting both revenue and cost. With the record-setting refinance volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will need to make tough decisions.”

Average production volume fell 29% compared to the fourth quarter, while production revenue was more or less flat at 350 basis points. Servicing income rose to $242 per loan from $71 in the fourth quarter.


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