Wednesday, August 14, 2013

What Just Happened - July 2013 Shifts Mortgage Market and MLO Need

JD Crowe sent me this article yesterday.  I am of fan of Rick Roque with and Rob Chrisman. They are always on point with their writings and this particular article is timely based on the capitulation in the refinance market in July 2013.

As mortgage companies review their July 2013 P&L, they will realize what just happened.  Mortgage Rates rose over an inflection point that severely reduced refinance demand.  Even at Southeast Mortgage, SEM, which is 90% retail "non-refinance" volume (Realtor, Builder, and Repeat Client) we experienced an unusual drop in refinance volume.  SEM is a Fully integrated, GSE Approved Mortgage Lender that has always focused on a Retail Strategy.  This has been SEM's niche since 1993 and has been perfected over the years with the addition of a full service Client Relationship Team for Realtors and Social Max Retail Centers across Metro Atlanta. 

What I find interesting about the excerpt below is the timeliness of the article and the message could not be more accurate in today's market.  Normally it takes the news a few months to realize significant changes in the market; however, Rick and Rob always seem to get it right.  Fully integrated Retail GSE Mortgage Lenders are in vogue for Mortgage Loan Originators looking to adapt to the recent changes in the Mortgage Market.

From: by Rob Chrisman                         
Fraud Stats Overstated; Mortgage Banker Margins; Fine-Tuning Nation's LO and Lender Numbers
Aug 13 2013, 5:34AM
Mortgage bankers who have been around for a while focus not on units or volume, but instead on net income and margin (wouldn't you rather than do one $400k loan versus four $100k loans? Wouldn't you rather make 3 points on $10 million a month versus 2 points on $13 million?).

Mr. Rick Roque with wrote, "What do you think of the concept of non-depository, mortgage banking margin strategies?  I am getting a number of phone calls from, what were $100M+/month refi call center shops who are now at $25-$30M/month, and are looking at launching retail. Despite my discouragement and numerous conversations, the large margins of old, especially in self-generated call center, refi business models are probably never to be repeated; or perhaps not for another 20 years.  But many of them are insistent, I dare say in denial trying to make big margins in retail - 200bps+ net.  My rule of thumb is a healthy retail, non-Ginnie-Mae servicer, should make 70-100bps net (after all expenses paid out, both corporate and retail) and I think this is even possibly stretching it.  Perhaps with agency approvals this could add another 50-70bps, but then you are talking about a range between 130-170bps net after all expenses both corporate and retail."
Rick goes on. "Naturally, these firms haven't touched a purchase loan and aren't staffed to underwrite FHA competently in various markets, and would need to staff up ($$) to accommodate this; they haven't developed a retail strategy ($$), so this would have to be done; and there would need to be the HR ($), Accounting ($), technology ($) and branch support structure ($$$) and recruiting structure ($) to grow and support retail. So, my advice has been:  don't do it unless you simply have 8-10 months to burn money before you even break even, and then probably another 6+ months to recoup your original investment.  And, to do this in a rising rate, margin sensitive environment, is again, almost ridiculous."

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