Falling mortgage rates isn’t slowing the housing bust 2: Mortgage lenders sing the blues

It just keeps getting worse.

By wolf richter for wolf street,

Mortgage applications to buy a home are a leading indicator of where home sales volume will be. Existing home sales closing in November declined 35% year-over-year, Declined for the 16th consecutive month year-on-year, marking a historic low, And mortgage applications went in the wrong direction from there, despite the drop in mortgage rates.

Mortgage applications to buy homes fell to the lowest level since Christmas week 2014, according to data from the Mortgage Bankers Association today, and beyond the 2014 lows, we’d have to go back as far as 1995.

Compared to a year ago, purchase mortgage applications declined by 44%. Even during the housing bust 1, mortgage applications did not decline as much year-over-year.

That Small Drop in Mortgage Rates Had No Effect, This decline in mortgage applications came despite a decline in mortgage rates, which began in the 7.1% range in mid-November and hit a low of 6.28% in mid-December. In the latest reporting week, the average 30-year fixed rate stood at 6.42%, according to the Mortgage Bankers Association.

The decline in mortgage applications shows that it really doesn’t matter the amount of home purchases, whether the 30-year fixed rate is 6.3% or 7.1%. The only difference is cosmetic. current home prices – although they have come down in many markets, and Some markets have fallen heavily – There are still many more.

Refinance Mortgage Amount Expired: Despite an invisibly low increase in the latest week, applications for mortgage refinances have fallen 86% from a year earlier. Since October, refinance applications have been at their lowest level since 2000. And it makes sense because hardly anyone would be refinancing a 3% or 4% mortgage with a 6% or 7% mortgage, except when cash-strapped.

mortgage lender crisis,

The mortgage lender, whose revenue has plunged as mortgage application volume has fallen, has spent the past 12 months laying off people and closing divisions. Some small operations have stopped altogether.

Wells Fargo, once the largest overall mortgage lender and then the largest bank mortgage lender, is the latest to make news with its additional efforts to defund the mortgage market in 2022, on top of the steps it has taken.

cnbc Reported Yesterday it was “learned” that the bank would now refocus its mortgage business solely on its existing bank and wealth-management customers, and borrowers from minority communities; that it is discontinuing its business that purchases mortgages that were originated by third-party lenders; And that it is “significantly” reducing its mortgage-servicing portfolio through asset sales. All this will bring a fresh round of layoffs on top of layoffs in its mortgage business that began in April last year.

Wells Fargo only had about 18,000 mortgages in its retail origination pipeline in the early weeks of the fourth quarter, down 90% from a year earlier, according to CNBC, citing people with knowledge of the company data.

Wells Fargo shares are down 29% from their recent high in February 2022, and 36% from their all-time high in January 2018.

The mortgage lenders that surpassed Wells Fargo a few years ago are non-banks — they were aggressive in getting mortgage business during the Easy Money era, then got crushed, and made it into my pantheon in 2022. broken stock, All of them have laid off large numbers of workers, and some have even shut down entire units to survive.

Their shares have fallen from their highs:

  • Rocket Companies (owner of Quicken Loans): -81%
  • United Wholesale Mortgage (owner of United Shore Financial): -73%
  • Loandepo: -94%

But mortgage delinquencies and foreclosures are still near record lows.

What the real estate and mortgage industries are lamenting is a decline in home purchase volume and a decline in mortgage origination volume, which has caused their revenues to fall.

The issue is not the credit quality of the existing mortgage. at least not yet; That stage may come later if and when unemployment reaches high levels, Which is not happening yet despite layoffs in tech, social media and finance, Mortgage and HELOC delinquencies, although they have risen above record lows during the pandemic, remain very low.

According to data from the NY Fed (green line), the HELOC 30-day-plus delinquency rate eased to 2.0% in Q3, 2022, in line with lows during the Good Times.

The mortgage 30-day-plus delinquency rate ticked up to 2.1% (red line), which is still lower than before the pandemic.

Foreclosures declined again in the third quarter to just 28,500 mortgage foreclosures, and remain well below the number during the Good Times before the pandemic, when there were about 70,000 mortgages with foreclosures:

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