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Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.


Banks Raise Mortgage Investments, Balloon Share & LTVs

Banks surveyed about mortgage market

March 27, 2012

By MortgageDaily.com staff


A new report indicates that U.S. financial institutions are diverting mortgage originations from private conduits to their own portfolios. The report also found that the company that acquired the biggest share of banks' third-party business last year wasn't even among the five-biggest players two years ago. Meanwhile, balloon originations and loan-to-value ratios are increasing.

Among the biggest concerns banks have about the mortgage market are regulatory burdens and compliance costs, though falling home prices and residential appraisal values were also high on the list.

Other concerns include continued high unemployment, an economic slowdown and an increase in foreclosures. In addition, bankers are concerned about the future of Fannie Mae and Freddie Mac as well as loan demand.

The findings were discussed in the 19th Annual Real Estate Lending Survey Report from the American Bankers Association. The report was based on responses from 185 banks, including 104 commercial banks and 81 savings institutions. Most of the participants -- 86 percent -- had less than $1 billion in assets.

Around 81 percent of banks' originations last year were generated by retail loan officers, a little more than the 78 percent retail share in 2010 but the same as 2009. The share seems to move inversely with refinance share, which slipped to 63 percent in 2011 from two-thirds a year earlier but was the same as 63 percent in 2009.

Mortgage brokers and correspondent clients generated 9 percent of 2011 production. The third-party share fell from 14 percent in 2010 and 11 percent in 2009.

Internet originations grew to 6 percent from 5 percent in 2010.

A little more than a quarter of banks surveyed said that they brokered loans to other wholesale lenders.

Among banks that sold mortgages last year, 42 percent sold them on a servicing-released basis, a third retained the servicing and a quarter utilized a mix of both strategies.

Last year, 41 percent of loans closed and funded by banks was retained for their own portfolios. Mortgages originated for investment grew from 38 percent in 2010.

But the share of loans sold to private mortgage conduits or aggregators fell to 17 percent from 22 percent. This reversed a trend established since the financial crisis began in 2008 -- when just 10 percent of loans fell in this category.

Last year's biggest aggregator was US Bank, which two years ago wasn't even among the top five. Bank of America slipped to No. 2 from the top spot in 2010, while GMAC -- which like US Bank also didn't make the top-five list two years ago -- ascended to No. 3. JPMorgan Chase followed, then BB&T.

The agency share of originations was 29 percent, the same as in 2010.

Balloon-payment loans accounted for 9 percent of last year's bank production, growing from 7 percent a year earlier and 5 percent two years earlier.

Mortgages with LTV ratios less than 80 percent represented 72 percent of 2011 originations, growing from 69 percent a year prior.

Nearly a quarter of the respondents noted that they had experienced an increase in repurchase demands last year.

Digital documents were used for investor delivery by 45 percent of the banks last year, while 39 percent considered digital imaging a priority for this year.

More than a third of the banks said they outsource their quality control functions.

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