Where do Industry Volumes Go in 2013; And What is Moving Rates? Chase Layoffs
I have published this before, and am often asked for the site again. It is a mesmerizing chart of current wind conditions in the United States.
This seems legit to me... what could possibly go wrong with automating the Ugandan bond market to help liquidity?
Regardless of wind conditions, regardless of Ugandan bond market changes, companies here in the U.S. keep hiring. The Partnership Channel of the retail mortgage division of Citibank is currently recruiting Loan Originators and Sales Managers in Washington and Oregon. Citibank "has experienced phenomenal growth" and is focused on continuing to expand its national footprint in 2013, and its Retail Mortgage Partnership Channel focuses on the formation of real estate and builder partnerships, generation of purchase mortgage volume, and effective cross-sell routines. The channel's unique approach redefines the traditional boundaries of the home purchase mortgage with the industry's realtors and builders. Experienced candidates who are proven leaders in the mortgage industry and have experience in both operational and sales processes should submit confidential resumes and qualifications to Citibank Recruiter Kenda Rice at kenda.l.rice@citi .com.
Down in Colorado, MegaStar Financial, a $1.2 billion retail FNMA and HUD approved mortgage lender, with multi state locations ranging from California to Maine, is adding to its Secondary Marketing team. Candidates should have a minimum of 2 years direct experience with mandatory, best efforts and direct sales to FNMA. MegaStar has history of promoting within, and has a President's Club for sales, operations and corporate employee(s) of the year. "We provide a paperless environment, training on new technologies, and our origination staff is knowledgeable and seasoned." The position is permanent, full-time located at the corporate office in Denver. Compensation includes salary, bonus, and full benefits including 401K match. Interested applicants should email HR@Megastarfinancial .com. Visit its website at megastarfinancial.com.
Citi and Megastar (and other employers listed in this commentary lately) may seem some activity from Chase employees. I've seen various layoff numbers, but basically JPMorgan Chase will trim thousands of jobs over the next two years, mostly eliminating jobs from the unit it had beefed up to handle troubled mortgages. The bulk of the cuts, about 15,000, will come at the mortgage unit, which had swelled to about 50,000 workers. But Chase said it hopes to find jobs in other parts of the company for displaced workers through a "redeployment" program. The rest of the cuts, about 4,000, will come from the consumer banking business, mostly the branches. JPMorgan said those cuts will come through attrition, not lay-offs. On the flip side, the bank is adding jobs in certain areas, such as commercial banking and asset management. Overall, it expects its payroll to be down by about 17,000 at the end of 2014. That means it would fall to about 242,000 from its current 259,000, a 6.5 percent reduction.
"Rob, I keep hearing industry pundits say, 'Trees don't grow to the moon' when they're talking about volume. (As a quick aside, aren't margins more important than volumes?) Is what happened in 2012 going to apply to 2013?" By practically every account, 2012 was a great year for the mortgage biz. Estimates say volume was up, industry-wide, 30% from 2011. But what goes up must come down, and data from Mortgage Daily's and Optimal Blue's U.S. Mortgage Market Index suggests originations during the first quarter of 2013 are on track to fall 16 percent quarter-over-quarter. For the fourth quarter, early numbers point to continued domination by Wells Fargo ($125 billion, 23% market share), Chase ($52 billion, 10% market share), Quicken ($25 billion, 5% market share), and Bank of America and U.S. Bank with 4% each. I'll save you the trouble - those 5 accounted for roughly 46% of the mortgage biz in the last quarter of 2012. The top five list for all of 2012 looked similar, though some of the positions are changed: Wells Fargo remained No. 1 with $524.0 in volume last year (28 percent market share), followed by Chase ($182.2 billion, 10 percent share); U.S. Bank ($84.5 billion, 4 percent share); BofA ($78.7 billion, 4 percent share); and Quicken ($70 billion, 4 percent share). And according to Mortgage Daily, the Federal Housing Administration (FHA) insured about $242 billion in loans last year, while the Department of Veterans Affairs (VA) insured an estimated $128 billion, bringing government share of the mortgage market to around 20 percent. Meanwhile, Fannie Mae and Freddie Mac together financed about 73 percent of 2012 originations.
But originations are only part of the picture. For servicing, with all that cash flow and great cross-selling opportunities, Wells Fargo dominated with its nearly $2 trillion portfolio. This was followed by Bank of America's $1.4 trillion portfolio (despite all those bulk servicing deals), Chase at about $1 trillion, Citi at roughly $412 billion, and U.S. Bank ($276 billion). But coming up fast on the outside are Ocwen (New Company (Co.) spelled backward) and Nationstar who nearly doubled their volume last year. They ranked in the top ten list at Nos. 6 and 7 with estimated portfolios of $204 billion and $203 billion, respectively.
We certainly have an interesting confluence of economic news! Rating agency Fitch expects pressure to continue on community banks in 2013, saying a "limited opportunity to improve fee-based income in the near term" means "mid-tier banks will continue to face greater earnings headwinds in 2013 than larger institutions with greater revenue diversification." This morning we learned that last week's mortgage applications were down 3.8% week over week with purchases -5.2% and refis -3.7%. Average loan size dropped to $193k on refis, a low we haven't seen since Jul 2011, indicating more of a shift to low loan size HARP refis. Conventional refis were off by 2.9% while GNMA refis were off by 5%. The 90-day moving average continues to trend downwards off by another 0.5% week over week. We had some former regulatory leaders propose that the government scale back housing market involvement, the FHFA say that home price growth exceeded 1% for the third consecutive quarter, LPS report that home prices are up 5.8% year over year, prices improved 7.3% on an annualized basis during the 4th quarter, and that new home sales shot up by over 15% in January.
This last number is interesting, especially in terms of December's results. Home prices rose to a two-year high in December, according to the latest Residential Price Index (RPI) release from FNC, Inc. Based on recorded sales of non-distressed properties in the country's 100 largest metropolitan statistical areas (MSAs), the FNC 100-MSA composite index shows December home prices remained relatively unchanged month-over-month. But on a year-over-year basis, the 100-MSA index was up 4.9 percent - not including foreclosure sales. The more localized 30-MSA and 10-MSA composites were similarly unchanged from November, though both showed a 5.8 percent increase year-over-year. Despite an unexpected deceleration in economic growth (the latest GDP report indicated a decline in growth in Q4 2012) the ongoing housing recovery maintained its pace, with prices growing 0.6 percent on a quarterly basis. Compared to the same period in 2011, the 100-MSA composite was up 4.3 percent. According to FNC, prices grew about 5.4 percent throughout 2012. FNC commented that foreclosure activity has rapidly dropped in the last year for both Phoenix and Las Vegas, which certainly helps things.
Interest rates: up, down, and all around. What is pushing rates? The markets continue to be driven in the short term by a lot of noise. People are focusing on the sequester here in the U.S., a UK downgrade, Italian elections, Cypriot bailouts, and basic economic news here. But taking a step back, much of these aren't really relevant to interest rates. Some argue, with good reason, that the focus should be on only three primary drivers of asset prices globally: Ben Bernanke (Chairman of the U.S. Federal Reserve), Mario Draghi (President of the European Central Bank), and Haruhiko Kuroda (the head of the Asian Development Bank). Rates will move up and down, and inflation is currently not an issue, but as we move forward on this path to a reflationary recovery, folks may keep in mind that central banks are diluting the value of fiat currency. And more physical cash will chase the same set of real assets. This in turn will drive asset prices higher. Eventually.
To no one's surprise, in his Semiannual Monetary Policy Report to the Congress, Chairman Bernanke said the FOMC has indicated it would continue its asset purchases until it sees substantial improvement in the outlook for the labor market. He said the job market remained generally weak with the unemployment rate above its longer-run normal level. He also said that the benefits of its monetary policy to promote a stronger economic recovery outweighed the potential risks. And in the Q&A portion, he said that when it came time to unwind the portfolio the Fed would "sell slowly with lots of notice." In recent research from Bank of America Merrill Lynch, MBS analysts believed sales were unlikely until 2016 and that the process would be a slow and gradual one. But that won't stop the press from yapping about it all the time.
Any industry related to housing is enjoying the ride. Yesterday we learned that New Home Sales for January jumped to a seasonally adjusted annual rate of 437,000, a 15.6 percent increase over the December number of 378,000 and a 28.9 percent increase compared to January 2012 when sales were at a rate of 339,000. The December figure was originally reported as 369,000 which had been an -8.8 percent drop from the previous month. According to the report (issued by the Census Bureau and HUD), sales rose on both a monthly and an annual basis in all four regions.
So we had that and some other stronger-than-expected economic news (home prices, consumer confidence and new home sales) offset some of the risk aversion caused by renewed worries in the euro zone due to political gridlock in Italy resulting from the recent elections. Forget those pesky Italian elections: stocks and fixed income markets in the United States both improved. MBS prices improved by about .125 and the 10-yr closed around 1.88%.
For news today we'll see a continuation of Chairman Bernanke's testimony, January Durable Goods (expected -4.4% from +4.3%, was actually -5.2%), 7AM PST's January Pending Home Sales Index, and a $29 billion 7-year Treasury note auction at 10AM PST. Early on the 10-yr is sitting around 1.85%, slightly better, and agency MBS prices are also a shade better.
An atheist was walking through the woods.
"What majestic trees!"
"What powerful rivers!"
"What beautiful animals!"
He said to himself.
As he was walking alongside the river, he heard a rustling in the bushes behind him.
He turned to look. He saw a 7-foot grizzly bear charge towards him.
He ran as fast as he could up the path. He looked over his shoulder & saw that the bear was closing in on him.
He looked over his shoulder again, & the bear was even closer.
He tripped & fell on the ground.
He rolled over to pick himself up but saw that the bear was right on top of him, reaching for him with his left paw & raising his right paw to strike him.
Instantly, the Atheist cried out: "Oh my God!"
Time stopped.
The bear froze.
The forest was silent.
As a bright light shone upon the man, a voice came out of the sky.
"You deny my existence for all these years, teach others I don't exist and even credit creation to cosmic accident. Do you expect me to help you out of this predicament? Am I to count you as a believer?"
The atheist looked directly into the light, and said: "It would be hypocritical of me to suddenly ask you to treat me as a Christian now, but perhaps you could make the BEAR a Christian?"
"Very well", said the voice.
The light went out. The sounds of the forest resumed. And the bear dropped his right paw, brought both paws together, bowed his head & spoke:
"Lord bless this food, which I am about to receive from Thy bounty through Christ our Lord, Amen."