BusinessInsider recently made a good call in highlighting a slide in JP Morgan's 4Q18 earnings presentation as explaining the troubles surrounding the US mortgage business. I'd like to delve in a bit more deeply...
It's readily evident that both factors highlighted, the mortgage rate spread and retail production costs, are headed the wrong direction, but why?
A rough correlation is evident between the spread and origination volumes. The evaporation of the refinance business has paired with anemic/flat new home purchase-driven production to drive a system-wide overcapacity that has murdered margins as players fight for slices of a shrinking pie. Painful, as the industry strives to a new equilibrium that will eventually let the spread recover.
While the spread has been volatile, the retail production cost has exhibited montonic growth. This cannot be simply explained away as the "impact of new regulations" so declared during the earnings call by Michael Weinbach, the CEO of the firm's mortgage-banking business. In fact, a substantial portion of these costs, upwards of half, are directly tied to loan officer compensation, which is generally indexed to the size of the loan, a relationship that can be gleaned from an MBA note from last year.
No comments:
Post a Comment