Pennymac, loanDepot and United Wholesale Mortgage produced third-quarter agency mortgage-backed securities issuance that "screen[s] furthest below our estimates," while Onity and Rocket look set to come in above expectations, a BTIG report found.
For the independent mortgage bankers BTIG covers, agency MBS issuance implies origination volumes 9% below the firm's third-quarter expectations and 14% below the consensus, according to the latest Mortgage Originators report, dated Oct. 2. BTIG's third-quarter volume estimates are 4% below consensus.
Funded mortgage volumes since the start of 2021 have had a strong correlation with MBS issuance for the companies BTIG covers.
"Bouts of interest rate volatility pose the biggest risk to this correlation given the timing differences between the funding of loans and the issuance of MBS," wrote Douglas Harter, an analyst at BTIG.
Both Pennymac and UWM are going after higher balance loans having
Pennymac lost about 500 basis points of market share in the correspondent channel. However, its share "appears to have stabilized in the low double digits following a steep decline in July," Harter said. "The correspondent channel (for the industry) was down 9% in the third quarter, slightly above the 10% decline in total industry volume."
At loanDepot, a shift toward home equity lending may be masking some of its production.
"We would note that HELOCs, which are not captured in agency MBS issuance, are becoming a bigger part of volume for loanDepot and could be driving some of the underperformance in MBS issuance data," the report said. "When compared to our estimate of lock volumes (which doesn't include HELOC volume), the MBS issuance volume implies approximately 3% lower volumes than our estimate."
On the other hand, it looks like Onity and Rocket will come in above BTIG's estimates.
Harter sees Rocket's ability to get purchase business in the direct-to-consumer channel as the most impactful item for the company's stock valuation multiple.
Rocket reported a 10.5% market share of retail purchase MBS issuance during September, which was up 110 basis points from August. For the full quarter, this ended at 10%, up 70 basis points versus three months prior.
"Pro forma for the Mr. Cooper acquisition, Rocket's retail purchase share has been in the high-single-digit to low-double-digit range over the past few years," BTIG pointed out.
Industry-wide slowdown
Agency mortgage-backed securities issuance was down 4% in September, and given where interest rates have been heading, the rest of the year is likely to see bigger drop-offs, a BTIG report warned.
The latest Mortgage Originators report, dated Oct. 2, also pointed out on the non-agency side, non-qualified mortgage issuance was down 18% for the just-ended third quarter versus the prior period. But it was still 6% higher than one year ago.
Separate data from Bank of America Securities noted this already is
Funded mortgage volumes since the start of 2021 have had a strong correlation with MBS issuance for the company's BTIG covers.
"Bouts of interest rate volatility pose the biggest risk to this correlation given the timing differences between the funding of loans and the issuance of MBS," wrote Douglas Harter, an analyst at BTIG.
The 10-year Treasury, driven by the latest inflation data and a weak jobs report, has backed off the 5.34% mark (the highest since 2002) it touched on Wednesday and but as of noon on Friady it was 3 basis points above its Thursday close at 5.27%,. As a result,
On the agency side, third quarter issuance was "modestly below" the origination activity average
"The near-term environment remains challenging for origination volumes given the combination of elevated mortgage rates pressuring volumes and typical seasonal slowdown in home buying activity," Harter said.
Originations for the rest of the year
The BTIG volume forecasts for this year were cut to $1.395 trillion purchase and $629 billion refinance in the latest report from $1.42 trillion and $700 billion respectively on Sept. 8. The Sept. 25 report, which unlike the other two, adds the September Fannie Mae and MBA reports as sources, had $1.401 trillion and $659 billion.
Harter also pushed down his forecasts for 2027 to $1.455 trillion and $410 billion. For 2028, is now $1.513 trillion and $604 billion.
Non-agency issuance in the third quarter
On the non-agency side, third quarter non-QM issuance totaled $24.3 billion, down 18% from the prior quarter, but up 6% over a year ago.
Home equity issuance (closed-end seconds, HELOCs and home equity investment) totaled $7.9 billion, which was up 1% versus the second quarter and down 6% from a year ago.
Rate volatility pushed non-QM credit spreads wider. Using Annaly as a proxy because of its issuance volume, the spreads on the tranches ranging from AAA down to BBB widened between 10 and 15 basis points in the most recent deal; for the quarter they were 10 basis points to 20 basis points wider.
