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Mortgage Industry Outlook Mixed

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The mortgage industry suffered some serious setbacks over the past six or so years — with hundreds of mortgage firms wiped out and close to half of employees in the industry losing their jobs at one point. While some segments of the business have experienced a partial recovery, real estate finance is likely to remain a shell of its former self for the foreseeable future.

Two years before the financial crisis hit the global economy in the fall of 2008, the mortgage industry began a meltdown.

Among the industry’s most notable casualties in late 2006 were subprime lenders like Aegis Mortgage Corp., Ownit Mortgage Solutions and Sebring Capital Partners LP. In all, Mortgage Daily tracked the closing or failure of 23 non-bank lenders during 2006.

The meltdown picked up steam the following year, with a total of 158 non-bank casualties tracked.

Although non-bank failures dropped off significantly — falling to just 17 by 2012 — the number of bank failures shot up.

Bank failures went from zero in 2006 to 157 by 2010. Last year, just 51 banks failed, and this year is on track to see the demise of around 30 federally insured banks.

The Mortgage Daily forecast calls for a continued decline in total mortgage-related casualties — though an uptick is eventually expected among the crop of default services firms that emerged to handle a wave of foreclosures.

Failures & Closings

(as of Jun 24)
Non-Bank Closings 7 17 27 32 75 88 158 23
Bank Failures (FDIC) 16 51 92 157 140 25 3 0
Credit Union Failures 9 15 19 22 20 14 7 9
Total 32 83 138 211 235 127 168 32

Prior to 2007, 30-day delinquency, excluding foreclosures, had been running at less than 5 percent, according to historical data from the Mortgage Bankers Association.

But the level of past-due payments turned higher in 2007 and peaked in 2009 at nearly 9.5 percent. Delinquency has since fallen back to 7.25 percent as of March 31 of this year.

As U.S. unemployment continues to decline and the real estate market moves ahead with its recovery, Mortgage Daily predicts that delinquency will trend lower — though delinquency rates less than 5 percent might not return for some time.

30-Day Delinquency Excluding Foreclosures*
2013 2012 2011 2010
7.25% (as of Mar 31)
*source: Mortgage Bankers Association

Interest rates, which have a huge impact on new mortgage activity, fell more than 3 percent since 2006 as the Federal Reserve implemented a strategy to maintain low rates in an effort to stimulate the economy. The central bank did this primarily through a policy of quantitative easing that currently has it purchasing $85 billion a month in Treasury bonds and agency mortgage-backed securities.

The effect of quantitative easing was to drag 30-year fixed rates down from 6.80 percent in the week ended July 20, 2006, to an all-time low of 3.31 percent in the week ended Nov. 21, 2012, according to data reported by secondary lender Freddie Mac.

But the Fed has indicated that it plans to start scaling back its bond purchases — pushing mortgage rates up to nearly 4 percent as of last week.

A combination of a recovering economy and the Fed’s eventual exit from bond purchases has Mortgage Daily forecasting that mortgage rates will continue their ascension over the next year.

30-Year Fixed Rates*
As of Week Ended Rate
Jul 20, 2006 6.80%
Dec 28, 2006 6.18%
Dec 27, 2007 6.17%
Dec.31, 2008 5.10%
Dec 31, 2009 5.14%
Dec 30, 2010 4.86%
Dec 29, 2011 3.95%
Nov 21, 2012 (low) 3.31%
Dec. 27, 2012 3.35%
Jun 20, 2013 3.93%
*source: Freddie Mac

New mortgage originations hit an all-time high of around $3.8 trillion in 2003 thanks to a massive refinance wave. Production maintained at around $2.8 trillion for the next three years then fell to around $1.6 trillion in 2008.

As mortgage rates fell to all-time lows last year, mortgage production rose to around $2.0 trillion in 2012.

But as rates have recently turned higher, refinance production has slowed.

Industry forecasts have 2013 volume at around $1.7 trillion, while next year’s total is expected to fall to around $1.1 trillion.

Residential Loan Originations (in trillions)

2014 2013 2012 2011 2010 2009 2008 2007 2006 2003
$1.1 $1.7 $2.0 $1.5 $1.7 $2.0 $1.6 $2.4 $2.8 $3.8

Fannie Mae reports that there were around $11.1 trillion in residential loans outstanding in 2007.

But with the onset of the real estate crash, total outstandings have faded each year since — falling to less than $10 trillion last year. However, Fannie projects that the nation’s home loans will be back above $10 trillion next year.

Mortgages Outstanding (in trillions)*
$10.147 trillion (est)
$9.953 trillion (est)
$9.925 trillion (est.)
$10.158 trillion
$10.522 trillion
$10.862 trillion
$11.005 trillion
$11.112 trillion
*source: Fannie Mae

Official government data from the U.S. Department of Labor indicate that employment within the mortgage industry stood at nearly 500,000 people as of the end of 2006.

Mortgage staffing took a sharp turn down in 2007 and kept falling until 2011, when it bottomed out at 265,100.

A moderate recovery since has pushed the total up to 292,800 as of April 30, 2013.

While financing for home purchases is on the rise and is likely to drive up demand for production employees, a sharp decline in refinance production will more than offset any gains from purchase activity.

In addition, as delinquency rates continue to retreat, mortgage servicers will eliminate jobs that were created to handle a high level of distressed borrowers.

Mortgage Daily’s forecast is for the next year is a decline in industry staffing.

Mortgage Employment as of Dec. 31 (in thousands)

30-Apr 2012 2011 2010 2009 2008 2007 2006
292.8 272.9 265.1 269.1 266.2 308.3 413.5 496.3

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