A fourth quarter decline in applications among the nation's top lenders will result in weaker first quarter origination volume. But there has been a pick-up in application volume in the current quarter, which will result in more interest rate locks for the period, a report from Keefe, Bruyette & Woods notes.
Gain on sale margins typically reflect interest rate lock commitments, KBW said. In the fourth quarter, gain on sale was down at most lenders compared with the third quarter. The biggest declines were reported by JPMorgan Chase, off 0.77%, and SunTrust, down by 0.71%.
KBW said the only companies with a sequential increase in gain on sale between the third and fourth quarters were Wells Fargo and Ally. In the case of Wells Fargo, that company has said the majority of its gains are recognized at the time of funding (as opposed to at loan commitment), which could have affected its margins during the quarter.
Lender fourth quarter results also were impacted by "continued meaningful charges related to repurchasing loans with rep and warranty breaches," especially from Fannie Mae and Freddie Mac.
However, KBW added "Private-label mortgage-backed security holders also have had relatively limited success putting loans back, and while that may change, current losses related to private-label putbacks remain small."
