Prepayment activity drops to another record low as mortgage rates top 7%

Prepayment activity drops to another record low as mortgage rates top 7%
Prepayment activity fell to another record low in October amid mortgage rates topping 7% and refis drying up. Black Knight expects that the steep declines in rate lock volume and seasonality factors point to further declines in prepayment activity.

Prepayment dropped 16.5% to a single-month mortality rate of 0.48%, well below the previous record of 0.55%, according to Black Knight’s October mortgage performance statistics report.

“While this is obviously a challenging environment from an origination perspective – the refi market is essentially nonexistent at this point – it also tends to increase the value of mortgage servicing rights on older loans with lower rates,” Andy Walden, vice president of enterprise research and strategy at Black Knight, said. 

Rate lock volume dropped by more than 60% in October year over year as it struggled under the weight of high mortgage rates, which closed out October at 7.06%. The refinance market is also nearing the bottom. Cash-out refis are now down 83.6% compared to October 2021, and rate/term refis have dropped by a staggering 92.6% year over year, according to a separate Black Knight report. 

The national delinquency rate, which was near an all-time low in September, rose 4.5% last month to 2.91%. Florida led the jump in new early delinquencies, with the state delinquency rate rising 53 basis points to 3.42% — offering an initial indication of Hurricane Ian’s impact. 

“A third of October’s delinquency rate increase was driven by the anticipated impact of Hurricane Ian,” Walden said. “Given the rise in new delinquencies was observed in non-hurricane-impacted areas as well, we will be keeping a close eye on mortgage performance in coming months to see how the situation develops.”

Black Knight noted that despite a nearly 10% jump in the number of homeowners who were a single payment past due in October, new delinquency inflow remained below pre-pandemic levels.

Loans 60 days past due ticked up 2.9% nationally, while those delinquent by 90 or more days saw continued improvement, inching down another 1.5% in October.

Foreclosure starts were initiated on 4% of existing serious delinquencies in October, up slightly from September’s 3%, but still less than half the rate seen in the years leading up to the pandemic.

Marcia Fudge will be the first sitting HUD secretary to visit Japan

Marcia Fudge will be the first sitting HUD secretary to visit Japan
U.S. Department of Housing and Urban Development (HUD) Secretary Marcia Fudge will be the first sitting HUD secretary to visit Japan when she arrives in Tokyo next week.

According to an announcement, Tokyo’s Governor Yuriko Koike will hold a joint news conference with Fudge on November 30 to “learn more about [Japan’s] policies regarding public housing, affordable housing models, and aging in place.”

Secretary Fudge is also slated to meet with the Minister of Land, Infrastructure, Transportation and Tourism (MLIT), Tetsuo Saitō, and tour public housing in the Edogawa Ward of Tokyo.

The conversation with the governor will focus on Tokyo’s broader approach to housing issues. According to recent estimates, Tokyo’s population was approximately 13.96 million in 2021 — which is much larger than the population of New York City, the largest city in the U.S., which had approximately 8.5 million residents in 2021.

While the HUD secretary duties are generally limited to domestic policy, Fudge has already made one other major international trip this year, attending the first-ever G7 Ministerial for Urban Development in Potsdam, Germany, in September.

Participants included representatives from the G7 nations — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, as well as “non-enumerated members” the European Union — and included discussions on topics like inclusive sustainable development and international coordination on development policy.

Inside Movement Mortgage’s acquisition plans

Inside Movement Mortgage’s acquisition plans
Movement Mortgage CEO Casey Crawford and President Mike Brennan.

Movement Mortgage’s deal to acquire top indie retail lender Mortgage Network marks a shift in the South Carolina-based company’s strategy.

“Over the years, we’ve been more focused on organic growth, one loan officer at a time,” said Mike Brennan, who became Movement’s president in January 2021. “But that’s changed: we’re now attracting bigger groups, bigger producers.”  

The shrinking mortgage market is the primary reason why. With most lenders heavily in the red these days, Brennan said Movement on average gets three or four offers a week to acquire struggling competitors.

One thing is culture: there are, during some times in the mortgage business, revolving doors. So, the thing that attracts us most is a good culture fit.Mike Brennan, president of movement mortgage

Brennan does not expect that to change anytime soon. “In the next couple of quarters, it’s going to be tough for a lot of companies, and we feel for them.”  

It will be especially tough for the group of lenders originating $1 billion to $2 billion a year, many of which are already receiving margin calls from investors amid a 50% drop in volumes. “The truth is, I don’t see in the next two quarters that that’s going to change for them – unless you see a drastic move in rates,” he said.

Despite many offers, Movement says “no” to about 99.5% of them, according to Brennan. 

In an interview with HousingWire, Brennan outlined the reasons. 

“One thing is culture: there are, during some times in the mortgage business, revolving doors,” Brennan said. “So, the thing that attracts us most is a good culture fit.”

In addition, Movement, a distributed retail lender, has no plans to expand to other channels, eliminating some potential targets. “We do not go into wholesale, and we don’t get into correspondent (channel). We want to stay laser-focused on what we’re great at.”

Even though there is no limit to the company’s size to be acquired, Movement prefers to target midsize lenders, which means between $5 billion and $7 billion in origination volume per year. (Brennan said he’s seen competitors struggle to make the most of big acquisitions.)   

Beside the acquisition of Mortgage Network, Movement has struck a few deals over the last few years. 

It bought a big piece of Lennar’s mortgage arm, Eagle Home Mortgage, in January 2019, expanding its Pacific Northwest and Mountain West market share. It added $1.5 billion in annual mortgage loan volume to its platform. 

The company also acquired the brokerage Superior Rate Mortgage of New England in August 2022, adding more than $400 million in annual sales volume and 48 employees. 

The financial terms of the deals were not disclosed.

Movement doesn’t necessarily consider geography in its expansion plans via M&A transactions, as it has a presence in all U.S. states. “I wouldn’t say we target specific areas,” Brennan said.

Cash is king  

A top-25 U.S. mortgage lender, Movement funded just under $20 billion in residential mortgages through the first nine months of 2022, down 23% year-over-year, according to data from Inside Mortgage Finance.

Over the last couple of years, as we had record years in profit, we just put everything back into the company. So we have a strong balance sheet. That’s now helping us in this market. Mike Brennan, president of movement mortgage

Like nearly all of its competitors, Movement has instituted several job cuts this year as interest rate hikes crushed mortgage demand, but it considers it’s in a “good place right now, with the team aligned,” according to Brennan.

Amid the shrinking market, Movement will support its acquisition plans with a war chest built over the last couple of years. 

Movement is owned by Casey Crawford, a former pro football player who founded the lender in 2008, and the Movement Foundation, which has a 49% share. Crawford is the only board member of the foundation.  

“Casey is always about pouring everything back into the organization, not taking everything out. So, over the last couple of years, as we had record years in profit, we just put everything back into the company, so we have a strong balance sheet. That’s now helping us in this market,” Brennan said.

Brennan did not specify how much cash Movement has and how many acquisitions it is planning to make in the coming year. 

Regarding the lender’s business, he said Movement is not a “transactional company, but a relational company,” meaning that it has always focused on partnerships with real estate agents and purchase loans. Brennan said purchase loans declined from 90% of the mix prior to the pandemic, to 67% during the pandemic. 

Data from mortgage tech platform Modex shows Movement originated just under 71% in purchases over the last 12 months when the total volume reached $24.7 billion. The company has 1,810 loan officers and 482 branches, Modex data shows. 

Movement has invested in its servicing book, a business it debuted in March 2020. According to Brennan, the company now services most of its loans and has about 240,000 clients. “Obviously, with the rates being 5% and 6%, people are not going to refi out. What we have done is we added our own HELOC program,” he said. 

One side of the business Movement that has been given more attention is the affinity group, which focuses on relationships with organizations to be their preferred lenders. In total, the company has 15 clients.