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Issue link: http://digital.themreport.com/i/1357006
M R EP O RT | 39 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION "We expect to see the current trend effectively flip as we move throughout the rest of this year as rates continue to rise." What Rising Rates Mean for Originators Margins on mortgages originated will get tighter, experts expect, and originators looking to fill existing capacity and support revenue will need to expand their product breadth. A combination of histori- cally low interest rate along with pandemic- related financial uncer- tainty has created a scenario ripe for refinances, which are domi- nating market activity, especially when it comes to jumbo loans, representing about 60% of jumbo lock volume in February, accord- ing to a non-agency secondary market data and insights report from MAXEX, a digital mortgage exchange. But, as rates slowly increase, experts say originators will have a refi void to fill with alternate products. "As rates start to rise and we move to a more normalized rate environment, we expect that purchase business will represent more than 50% of total jumbo originations. We expect to see the current trend effectively flip as we move throughout the rest of this year as rates con- tinue to rise," note the report's authors MAXEX's CEO Tom Pearce, President Bill Decker, and Chief Commercial Officer Greg Richardson. "Originators will need to take note of the trend away from refinances and into the purchase market. With home prices surging due to many fac- tors, like limited inventory, lenders will need to look to the jumbo market and drive more revenue with non-agency products." The execs also highlighted the following in a report summary: • As originators increasingly turn toward the non-agency market for new revenue opportunities, an increasing number are benefiting from using the agen- cies' Automated Underwriting System (AUS) results to simplify jumbo underwriting. • Weighted Average Coupon (WAC) on jumbos saw a gradual decline through • January 2020 with a slight increase beginning in February 2021. • Credit trends: FICOs remain higher than historical averages as credit rules. With lower rates we continue to see loan-to-value (LTV)s diverge on refinances versus purchases. • Loan values remain elevated compared to pre-pandemic lev- els, averaging close to $1 million since Aug. 2020. • ON inflation and the Fed— Federal Reserve Chair Jerome Powell has sidestepped discus- sion on bond yields and says inflation is still "soft" and we are far from achieving employment goals. In its final market/economic summary, MAXEX reports that what the industry is going through now is "the beginning of climb- ing out of the extremely low-rate environment and the start of some reflation of the economy." "Rates should moderate here for a while but margins on mort- gages originated will get tighter. Originators looking to fill exist- ing capacity and support revenue will need to expand their product breadth."