The rise in the yield on the 10-year T-note since the lows of last August, then punctuated by the sharp rise from January 2021 to early March, raised the question of whether the mortgage industry was yet feeling the effects of the higher yields on production pipelines and spreads.

To get some answers, 10 questions were drafted and 8 senior executives at 8 different mortgage companies were contacted to see what could be learned about activity, spreads, pricing, operations, servicing elements, and expectations. All 8 were either production or capital market executives, 3 at banks and 5 at IMBs. Seven of the 8 surveyed were on the roster of 2020’s 100 largest agency lenders. The smallest firm did $2.1 billion of retail production last year, the largest over $150 billion.

The telephone survey was conducted the week of March 8-12. Here is what we learned.

March 2021 Survey

How has the recent rate spike affected your mortgage business?

Overall, the 8 compiled lender reports indicate only a very modest softening in new loan volume. Price competition is warming, not hot. Everyone is still busy with rates remaining attractive. Retail volume is firm and holding, wholesale is off 10-15%, and correspondent is up 5-10%. The uptick in mortgage rates has accelerated locks and pull-through is near perfect. Purchase volume hasn’t softened, though rate and term refi volume has dipped slightly – off 10% on average inside a range of down 5-25% depending on the lender. Cash-out volume is strong and growing. Today’s still attractive spreads are expected to return to pre-pandemic levels in the second half of 2021.

By how much have primary market spreads narrowed during this period?
60 bp mean & mode (Range 40-75 bp)

How much did Treasury yields rise before mortgage pricing was affected?
50 bp (10-year T-note yields climbed from 50 bp to 100 bp before mortgage pricing moved up)

Have your production pipelines already been thinned?
Purchase? Y-0 / N-8   By 0-10%     Refi? Y-3 / N-5    By 5-25%

Have Fannie and Freddie responded to the increase in rates by widening cash market spreads?
Y-3 / N-2 Don’t Know- 3

What percent of your company’s employees are still working from home?
90% mode (Range 75-97%)

Has a date been set for a return to the office?
Y-0 / N-8

Scaled 1-10, how good a year was 2020 for servicing prices, loan retention, and recapture?
Servicing?  2.5      Loan Retention? 7.5      Recapture?  5

Overall, servicing prices (though a shade better than in 4Q20) remain weak, prompting released sellers to leave money on the table. Loan retention continues to improve for big servicers, while recapture is hit-or-miss depending on the channel and the size and strength of the consumer direct channel.

Was 2020 an all-around record year for your firm?
Y-7 / N-1

 Are you optimistic that 2021 will be another very good year for mortgage banking, with aggregate origination volume of +/- $3 trillion?
Y-8 / N-0

Optimism reigns in the mortgage banking industry for 2021. Everyone surveyed expects as strong a purchase market as supply allows, continued solid refi activity, especially cash outs, given record levels of home equity, and altered work and school routines and lifestyles.

Conclusion

It has been an incredible year-long run for the mortgage banking industry in 2020 – somewhat amazing when you consider the backdrop of the pandemic, recession, and elevated unemployment levels. Still, mortgage rates are low and consumer demand remains robust, so spirits remain high for 2021 among executives following the all-around record year in 2020.

In May, we’ll have a broader, deeper look at industry thinking on various issues and topics.

The opinions and insights expressed in this blog are solely those of its interviewee, Tom LaMalfa, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.

Tom LaMalfa

Tom LaMalfa, President, TSL Consulting

Tom LaMalfa is a 35-plus-year veteran mortgage-market analyst and researcher. He has done pioneering work in the areas of secondary markets, wholesale mortgage banking, mortgage brokerages, financial benchmarking and GSE reform. He may be reached by e-mail at Tom.LaMalfa@gmail.com.