First the good news: mortgage lenders had a strong fourth quarter and profit margins on new originations were still exceedingly high even though rates began ticking up the last few weeks of the year. Now for the bad news: few in the industry think the good news of the past several months will continue much beyond March. Loan brokers, in particular, are fearful that their depleted ranks will suffer even more if application volumes sag, and worries persist that yet another major wholesale funder will head for the exits. And, of course, new rules are scheduled to take effect in April, putting restraints on how all LOs can be compensated. (See related story in this issue.)
As for another large wholesaler leaving the business, brokers received some good news early in the year when a top executive at Wells Fargo issued an e-mail to all its outside LOs noting that although the bank closed a processing center in Concord, Calif., it was still committed to the channel.
The memo, written by Wells EVP Kathleen Vaughan, lamented the closure of the Concord facility, but said, “If you only take away one thing from this message, I want it to be our resounding commitment to you and your business. We remain steadfastly committed to wholesale lending and will continue to work to maintain our position as the leader in wholesale lending. We firmly believe that you play an important role in the lending industry and bring competition to the marketplace by offering choice for borrowers.”
Back in October, Bank of America, then the nation’s fourth largest wholesaler, exited the channel, fueling speculation that Wells might be the next to leave.
According to figures compiled by Origination News and the Quarterly Data Report, Wells continues to rank first among all lenders, and dominates in two of three production channels: retail and wholesale.
And according to recent rankings, some firms are continuing to post strong gains in wholesale, chief among them U.S. Bank Home Mortgage, Bloomington, Minn., and Stearns Lending, Santa Ana, Calif.
Still, the origination business lives and dies on applications and rising rates crimped new business in early January, although the past two weeks of the month showed promised.
Bill Dallas, CEO of Skyline Financial, a nonbank lender based in Agoura Hills, Calif., said that during the first half of January applications at his shop were off 35% with originations dropping 25%. But Dallas began to see an increase in activity later in the month.
For now, many lenders are hanging their hopes on purchase money loans increasing significantly this year, making up for a decline in refinancings. But as one West Coast-based mortgage banker noted, “When you go from $1.5 trillion in production (in 2010) to $1 trillion (in 2011) there are going to bodies lying in the street.”
He added, “Not everyone is going to make it onto the lifeboat.”
One of the biggest complaints being voiced by LOs these days centers around tight underwriting guidelines. In years past, when volumes were slated to fall many lenders—as though on cue—loosened their guidelines in an attempt to spur applications. But that tactic works only when the housing market is healthy, and few believe that rising home values are right around the corner.
Jon Daurio, a top executive at Kondaur Capital of Irvine, Calif., an investor and servicer of nonperforming mortgages, believes home values, nationwide, will slip another 10% this year and maybe by 20% over the next three years. “Tight credit is further exacerbating this mess,” he said.
So, does that mean all this talk of a production disaster for 2011 is off base? Craig Cole, the head of loan fundings at Union Bank of San Francisco, said at his bank application volume was down during the first 10 days of the year, but is now gaining steam. “We are seeing some purchase volume inching up,” he said, adding that refis are still “heavy.” Union Bank is both a wholesale and retail lender.
