TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 35 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest ORIGINATION mortgage apps reverse downward trend in may Despite staying down year- on-year, applications show some signs of life. U sing information reported weekly by the Mortgage Bankers Association (MBA), research firm Capital Economics calculated a 2.0 percent rise in application volumes throughout May; a reversal from April's 4.8 percent drop. The increase came despite a 3.1 percent decline in the month's final week, bringing activity to a six-week low. In a note to clients, Ed Stansfield, the chief property economist at Capital Economics, called the latest drop "disap- pointing," though he added, "it is important to remember that the application data are very volatile, even after seasonal adjustment." "[F]or now at least, the monthly average data are still just about edging upwards," Stansfield said. "And with the economic outlook still improving, we still expect mortgage applications to strength- en as the year progresses." Application volumes in May were boosted by a 2.0 percent monthly increase in applications for home purchase, bringing total applications in that segment up by a cumulative 9 percent over the past three months. At the same time, however, purchase applica- tions remain down 17 percent compared to last year's levels. Meanwhile, refinancing numbers rose 2.2 percent over the month, nudging up after a 10.8 percent decline in April. Refinances over the last 12 months have fallen off precipitously over the past year as mortgage interest rates started creeping up from last year's lows, but they have seen a slight resurgence in recent weeks as rates have fallen to their lowest level in six months. insurance costs catch Home shoppers Unaware Millennials are especially ill-prepared for the added cost of mortgage insurance. a ccording to research results put out by TD Bank, 37 percent of homeowners who purchased within the last decade required MI. Looking at just the last two years, that number is up to 43 percent, reflecting the trouble that buyers tend to face in meeting normal down payment minimums as home prices march upward. Of those who have had to go with insurance, 65 percent said the additional premium left them paying a higher monthly payment than they had origi- nally anticipated, and 53 percent reported experiencing a negative impact because of that additional cost, which averages about $100 per month, the bank estimates. "PMI [private mortgage insur- ance] has had a definitive impact on many home buyers—including making them rethink or delay the purchase of a home in light of not being able to meet monthly mortgage payments," said Michael Copley, EVP of retail lending at TD Bank. The effects of MI costs are felt the most among Millennial homeowners, 43 percent of whom required insurance and were not able to make the normal 20 per- cent down payment. Among Gen X-ers, 37 percent of recent buyers have needed MI, while less than a quarter—23 percent—of Baby Boomers have needed it. Millennials were also more like- ly to say insurance requirements impacted their home-buying decisions, with 30 percent either delaying their purchase or going with a smaller home. Meanwhile, nearly half of Millennials said they've had to cut back or delay purchases of other items in order to handle the higher cost. With the Federal Housing Administration (FHA) now requiring mortgage insurance for the entire life of its loans, Copley urged would-be buyers to explore all avenues available to them if they're unable to make a 20 per- cent down payment. "While FHA loans may be available, homebuyers, especially first-time buyers, may not realize the options available to them that don't require PMI insurance," he said. "Prospective buyers should meet with a lender or financial institution to find a loan solu- tion that meets their needs and monthly budget." "An increasing number of lend- ing entities are now pursuing the correspondent business; Citi's an- nouncement reinforces the belief that a lot of quality loans are out there," Kelly said. As the bank seeks to move back into the market, Fraser as- sured the MBA audience that Citi plans to keep a cautious approach as the government continues to move on companies for alleged violations of securities laws. In 2012, Citi agreed to a $158.3 mil- lion settlement with the Justice Department to resolve accusations that it misled the government into insuring risky home loans, and the bank is now report- edly in discussions to settle other mortgage-related concerns. Still, Fraser said the bank is fo- cused on moving forward and "is no longer reacting to the crisis." Christina Pham, president of JMAC Lending, a wholesale lend- er that has worked with Citi, says the firm's renewed focus demon- strates a greater understanding of how to approach a transforming market. "I think right now they're getting the hang of it, so they're comfortable to go back in aggres- sively," Pham said. Scott Stoddard, CEO of lend- ing software provider Quandis, agreed, adding that the market is ripe for new business. "Like several large organizations, Citi got caught up in accusations of being involved in bad loans and foreclosure problems... [and] scaled back in mortgages after that," Stoddard said. "Simply put, Citi has re- entered buying and investing in closed loans because the dust has settled and there is profit to be made, and with far less risk than there was during the subprime boom." Whether Citi will be able to reclaim its old place near the top of the lender rankings remains to be seen, especially since it's not the only bank looking to make a comeback. "We see the correspondent channel as only further growing, with all kinds of lending entities getting back into the business," Kelly said.