Forbearance rates are increasing at a slower pace, according to the latest data from the Mortgage Bankers Association (MBA). In addition, purchase applications are increasing, showing the market’s resiliency and possible rebound.
Overall, applications decreased 3.9 percent for week ending May 29; however, the week’s results included an adjustment for the Memorial Day holiday. On an unadjusted basis, applications decreased 14 percent from the previous week. The Refinance Index decreased 9 percent— still 137 percent higher YoY. Unadjusted, the Purchase Index was down 7 percent from the previous week—18 percent higher YoY. The seasonally adjusted Purchase Index increased 5 percent from the previous week.
The refinance share of total mortgage applications went down to 59.5 percent from 62.6 percent WoW. And the adjustable-rate mortgage share increased to 3.5 percent of total applications.
“Purchase applications continued their recent ascent, increasing 5 percent last week and 18 percent compared to a year ago. The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “However, there are still many households affected by the widespread job losses and current economic downturn. High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months.”
Added Kan, “In contrast to the upswing in purchase activity, refinance applications fell for the seventh consecutive week—even as the 30-year fixed rate hit another MBA survey-low of 3.37 percent. After reaching a peak of 76 percent earlier this year, refinances now account for less than 60 percent of activity, and the index is now at its lowest level since February 21.”
The MBA Forbearance and Call Volume Survey shows the total number of loans in forbearance is up 8.46 percent WoW from 8.36 percent as of May 24. According to the MBA’s estimates, over 4.2 million homeowners currently have mortgages in forbearance.
“MBA’s survey continues to indicate that fewer homeowners are seeking forbearance as more states across the country reopen their economies and prospects begin to improve. The share of loans in forbearance increased by only 10 basis points over the week of May 24,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Policy support for households, including expanded unemployment insurance benefits and other transfers, have helped many stay on their feet during this crisis. With 11.82 percent of Ginnie Mae loans currently in forbearance, FHA and VA borrowers are struggling the most.”
“Forbearance requests and call volume declined relative to the prior week and led to further declines in wait times and abandonment rates,” added Fratantoni.
From a servicer standpoint, mortgage production is proving profitable. According to MBA’s Q1 Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,600 on each loan originated (up from $1,182 in Q4 2019). In addition, the average pre-tax production profit was 61 basis points in the first quarter, up from 46 in Q4 2019.
“Mortgage production profits were strong in the first three months of 2020, despite a decline in production volume from the fourth quarter and March’s severe market volatility sparked by the COVID-19 pandemic,” said Marina Walsh, MBA’s vice president of industry analysis. “As credit spreads widened, revenues grew by 25 basis points from the fourth quarter, offsetting a reported increase in expenses.”
“Overall, it was a solid showing for independent mortgage banks—particularly for a first quarter—with 78 percent reporting profitability across production and servicing operations, compared to 84 percent in the fourth quarter,” added Walsh.
Source: Mortgage Bankers Association