TheMReport — News and strategies for the evolving mortgage marketplace.
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36 | Th e M Rep o RT 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 Purchase Market grows in april Loans closed a little bit faster, too. t he refinance share of the market, necessar- ily then, is declining, falling to 37 percent in April, according to Ellie Mae. "This is the highest percent- age of purchase loans we've seen since we began reporting data in August 2011 and two percentage points higher than the previous high of 61 percent in October 2013," said Jonathan Corr, presi- dent and COO at Ellie Mae. Another significant finding in Ellie Mae's Origination Insight Report for April is the continu- ing decline in the number of days it takes a loan to close. April marked the third consecutive month of declining days to close and was also the first time in Ellie Mae's records that the number has fallen below 40. The average loan originated in April took 39 days to close, down from 40 in March and 46 a year ago. Purchase loans took several days longer to close than refi- nance loans, as is usual. Purchase loans that originated in April took 40 days to close, down from 41 in March, while refinance loans took 37 days to close, unchanged from March. A sign of loosening credit standards, one-third of loans closed in April went to applicants with FICO scores under 700, up 10 per- centage points from 23 percent in April 2013, according to Ellie Mae. However, the average FICO score on all first-lien loans closed in April remains above 700, at 726. This rate has grown slightly from 724 at the start of the year but remains below last year's overall average of 738. The average FICO score of a loan denied in April was 690. This rate is also lower than the 2013 average, which was 699. The average loan-to-value ratio for a first-lien loan closed in April was 82, remaining unchanged over the first four months of this year. The average debt-to-income ratio for a loan closed in April was 24/37, unchanged from March and little changed since the start of the year. Adjustable-rate mortgages continue to grow in market share, claiming 7.6 percent of the market in April, up from 7.4 percent in March and more than twice the market share recorded in April 2013—3.2 percent. On the other hand, 15-year loans have fallen in share since last year, declining from 15.3 percent in April 2013 to 12.2 percent in April 2014. The Federal Housing Administration's market share remained steady at 22 percent, the same as both two months ago and last year. Conventional loans made up 64 percent of the mortgage origina- tions market in April, down 1 percentage point from a month earlier and 4 percentage points from a year ago. Bank earnings down 7.6% on lower Mortgage numbers FDIC-insured banks report a nearly $4 billion drop in mortgage revenues in Q1. A ccording to the agency's latest quarterly banking profile, com- mercial banks and savings institutions insured by FDIC earned an aggregate net income of $37.2 billion in Q1, down 7.6 percent from earnings of $40.3 bil- lion posted the same time last year. FDIC reported the decline was "mainly attributable to a $7.1 billion (10.7 percent) decline in noninterest income," about $4 billion of which came from decreased mortgage revenues as inter- est rates continued to rise. "Since the increase in longer-term interest rates in the second quarter of 2013, mortgage income over the past three quarters has been about half of what it was over the previous six quarters," said FDIC Chairman Martin Gruenberg. The rest of the difference in last quarter's noninterest income came from lower -trading revenues, as well as a one- time gain in income at one institution a year prior. FDIC's data confirms what many of the nation's biggest banks have already reported. Wells Fargo, Bank of America, and JPMorgan Chase were among a number of banks whose mortgage banking outfits suffered as production volumes slowed. Despite the drop in overall profits, FDIC reported the overall banking picture continues to look healthier as asset quality improves, loan balances trend up, and fewer firms report losses. According to FDIC, more than half of reporting banks saw profits grow over the year, and the number of banks posting quarterly losses was down to its lowest level since 2006. Household debt rises in First Quarter New mortgages dragged, however. t he New York Fed recorded an increase of $129 billion in national outstanding household debt in the first three months of the year, bringing the total debt level up to $11.65 trillion. It was the third straight quarterly gain. Leading the increase was a rise in mortgage debt, which was up by $116 billion from the end of 2013, according to the bank. However, with originations dropping to $332 billion—the lowest level since the housing recovery started—there was little to celebrate on that front. Among other issues—including an apparent lack of loan demand and tight credit restrictions—ongo- ing weakness in new lending can in part be attributed to younger consumers, who are already over- burdened with debt and reluctant to take on more. As economists for the New York Fed explain in a blog post for the bank: "One possible reason for the failure of student bor- rowers' housing and auto consump- tion to return to pre-recession levels is the growing burden of student debt. ... Despite an 11 percent house price recovery over the course of 2013 and an increase in overall mort- gage debt, thirty-year-olds with and without student loans continued to retreat from the housing market." Incidentally, student loan debt was up $31 billion over the quarter and remains second only to mort- gage debt at a total of $1.11 trillion. More encouragingly, delinquen- cy rates improved across most categories compared to the fourth quarter. Among all mortgage debts, the New York Fed recorded a 90+ day delinquency rate of 3.7 percent, down from 3.9 percent a few months earlier.