Week ahead: A high-stakes Fed meeting

Good morning. This is Mortgage Nuggets - we break down mortgage news into bite-sized updates. Every Mon, Wed, and Fri.

Today is the vernal equinox, which is a fancy way of saying it’s the first day of spring.

1. Average IMB lost $2,812 per origination in Q4’22

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks faced significant losses in Q4 2022, as mortgage rates increased.

IMBs reported an average net loss of $2,812 per loan, over four times the Q3 average per-loan loss. The Mortgage Bankers Association (MBA) noted this marked the third consecutive quarter of pre-tax net production income losses.

Even when accounting for all business lines, only one in four companies was profitable in Q4 2022. This challenging time for mortgage originators saw cost-cutting measures, such as layoffs, insufficient to turn the tide.

Production volume and average loan balance declined, while loan production expenses reached an all-time high.

The MBA forecasts improvements starting in Q2, with industry volume expected to rise and 30-year fixed mortgage rates to decrease.

2. Homebuilders are optimistic

Mortgage rates are all over the place, home prices aren't exactly wallet-friendly, and inflation's still being a party pooper. But guess what? Homebuilders are starting to feel a little more optimistic.

The National Association of Home Builders/Wells Fargo Housing Market Index actually rose in March, when everyone thought it'd drop. It hit 44, and anything above 50 is the sweet spot.

Builders are juggling high construction costs and pesky supply chain issues, but there's still a lot of pent-up demand from buyers hoping for lower interest rates and more new homes. However, with the banking system's recent hiccups and volatile interest rates, builders are playing the guessing game for the near and medium-term outlook.

Bottom line: For the third straight month, builder sentiment's is on the upswing, but there's still a bumpy road ahead. Housing inventory's cost and availability are still making homebuyers sweat.

3. More Nuggets

🇨🇭 Swiss banking giant UBS will buy its rival Credit Suisse for more than $3 billion in a historic tie-up of the country’s biggest banks. It’s one of the most significant banking events in years, marking the first merger between systemically important global banks since the 2008 financial crisis. (FT)

💸 Week ahead: A high-stakes Fed meeting—The central bank’s plan to continue raising interest rates has been upended by the banking turmoil, and experts now say there’s a chance the Fed will pause its rate hikes to shield the banking sector from further chaos.

🗞️ Mortgage CRM company Daily AI rebrands to Aidium Mortgage CRM, launching a revamped CRM product to streamline loan origination processes and improve efficiency for mortgage professionals. (Aidium)

4. Zillow: The banking crisis is a new variable

The recent collapse of Silicon Valley Bank has raised concerns in the real estate industry about mortgage rates and the economy. Zillow's Chief Economist, Skylar Olsen, predicts two possible impacts on the U.S. housing market in 2023:

1. Mortgage rates could fall if the Federal Reserve refrains from imminent rate hikes. This may lead to increased affordability for home buyers, but they should still plan for rate volatility. However, if SVB's collapse signals a wider economic issue, the benefits of lower mortgage rates might be offset by a deeper and longer-lasting recession.

2. Tech hubs like San Francisco, Boise, and Seattle may experience more challenges due to SVB's downfall. As Olsen notes, “A widespread tech downturn might be felt in housing markets like the San Francisco Bay Area and Seattle, where tech employment and stock prices have an outsized effect. With fewer home buyers in these markets able to afford the elevated prices that have been supported over the years by high incomes and stock growth, it’s likely these markets would chill and prices would come down.”

While lower mortgage rates could offer short-term affordability benefits, buyers and sellers should consider long-term risks associated with wider economic issues. A cautious approach and a long-term perspective are essential for navigating the uncertain housing market landscape.

5. Changes to fair lending rule

The Department of Housing and Urban Development has announced its proposed reversal of a 2020 change to a rule governing Fair Housing Act claims.

A new rule set to go into effect 30 days after publication in the Federal Register reverses the one put into place during the Trump administration related to so-called disparate impact claims. The 2020 rule made it tougher to allege lending discrimination.

The rollback officially reinstates the 2013 discriminatory effects rule, which involves a three-part test for discrimination claims. The 2020 rule would have imposed a five-part test and would have required plaintiffs to not just show the effects of discrimination were evident but that it had an intentional cause. Given the rollback, plaintiffs no longer need to prove intent.

"Accordingly, regulated entities that were complying with the 2013 rule have no need to change any practices they have in place to comply," HUD noted.

☀️ Thanks for reading. See you on Wednesday!

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