Purchase Loans Gaining Purchase

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WE’RE HEARING there's a general expectation that purchase mortgage lending will pick up as refinancings continue to decline over the next four quarters.

But some have their doubts. So far, high fees and conservative underwriting has kept many potential homebuyers on the sidelines. The low inventory of homes for sale isn't helping either.

The Mortgage Bankers Association estimates that lenders originated $303 billion in purchase mortgages in the first half of this year, compared to $251 billion in the first half of 2012.

That looks like an improvement. But HMDA data released this September are expected to show the number of purchase mortgages originated in 2012 will be at levels last seen in the early 1990s.

Meanwhile, the recent spike in mortgage rates has iced refinancings. The MBA estimates lenders completed $673 billion in the first half of 2013. But refinancings could decline to less than $300 billion in the second half.

This drop in volume will cut profits and force layoffs unless there is a significant increase in purchase mortgage volume. It could also hurt the recovery in housing.

In a landmark speech in March, Federal Reserve Board Gov. Elizabeth Duke stressed that household formation must pick up and lenders must be willing to finance borrowers with low credit scores for the “housing recovery to gain true momentum.”

Between 2007 and 2012, Duke pointed out, purchase mortgage originations fell about 90% for borrowers with credit scores between 620 and 680.

Hopefully, purchase mortgage originations will pick up in the coming quarters.

However, mortgage rates are not expected to come down, and lenders may have to reduce their credit overlays to stimulate demand.

The high guarantee fees and loan level price adjustments that Fannie Mae and Freddie Mac charge don't help either.

The Federal Housing Administration also makes its tough on homebuyers.

Currently, FHA charges a 1.35% annual insurance premium on a single-family loan. On a $250,000 loan, a FHA borrower pays a monthly premium of $300—in addition to principal and interest. That is no bargain.

SHOUT OUT: We promised a shout out to anyone in the business who helps us get out of the tepid recovery with ten net new hires in a year. This month we give a shout out to the whole mortgage industry, which added 2,700 jobs during June. We will have to see where rates go to see if this momentum can continue. Meantime, the hiring heroes at Churchill Mortgage have gone out and hired 11 more people, which is about the seventh time they’ve done that already this year. These latest moves at the Brentwood, Tenn., company bring total hires for the year to about 80.

BEING SELFIE-LESS: If you didn’t know what a selfie is, Garth Graham’s blog this week will clue you in. (Garth, while not terribly hip himself, lives with a teenaged daughter who keeps him up to speed.) A selfie is a photo of oneself taken with your cell phone and posted to the Internet. Recently, selfies have gotten a bad name with the news around former Rep. Anthony Weiner’s unfortunate habits, but most selfies are innocent. Teens shoot and post them by the billions every day, apparently (they will stop this practice by the time they turn 40, believe us). And knowing Garth, you know there’s a parallel to the mortgage business from selfies which he will bring us up to speed on. To find out what it is, click on the link above!

MOST READ/MOST EMAILED: According to our story counter, last week’s most read and most emailed items remain the same this week. Now, the Internet isn’t the Top Forty. There aren’t songs that stay on the top of the charts for six or seven weeks in a row. So we’re going to exercise editorial judgment and say an item from way back on July 25 is ancient history and go to No. 2. No. 2 happens to be the same in both categories, Brad Finkelstein’s item on EverBank abandoning the wholesale channel. Why? They are still making money on wholesale, but not as much, and they are worried about regulatory burden. So they are shifting their emphasis to retail.

THOSE CRAZY VINERS: We’ve often opined that our online chat room at www.mortgagegrapevine.com will eventually get around to addressing every topic under the sun. This week, we found a serious thread on the topic of fishing. The personal flaming that mars many of these threads is almost totally missing (the word “retard” is still offensive though, right?) but mostly these guys consider the relaxing sport of fishing pretty seriously. While not “A River Runs Through It,” this thread is a revealing look-see into the considerable leisure time folks on the Vine seem to have.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.