Morning Report: 2020 was a record year for mortgage originators

Vital Statistics:

 LastChange
S&P futures4,131-1.4
Oil (WTI)60.940.84
10 year government bond yield 1.63%
30 year fixed rate mortgage 3.22%

Stocks are flat this morning as we kick off earnings season. Bonds and MBS are up.

JP Morgan reported strong earnings this morning which included $5.2 billion in credit reserve releases. These are reserves the bank took for potential losses related to COVID which now look unlikely to materialize. Consumer lending has returned to pre-pandemic levels, and mortgage origination was up 40% YOY. Return on equity was an eye-popping 24%. JPM CEO Jamie Dimon is pretty bullish on the economy.

New Residential is buying Caliber for $1.675 billion in cash. That must explain why Caliber recently increased its investment property LLPAs to 7-9 points. Caliber earned $891 million in pre-tax income in 2020, so New Rez is paying 1.9 times pretax earnings for the company, which originated $80 billion last year. It also gets a $153 billion MSR portfolio.

Caliber is owned by Lone Star Funds, and this sale (along with Amerihome) shows that private equity is ringing the register on mortgage originators. I suspect these funds are going to re-deploy that cash into single-family rental strategies.

The MBA estimates that the industry did $3.8 trillion in mortgage originations last year, which would be the best year ever recorded.

“2020 was a banner year for the mortgage industry, despite the COVID-19 global health crisis essentially shutting down the U.S. economy in March and forcing personnel into remote work environments,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “A surge in housing and mortgage demand, record-low mortgage rates and widening credit spreads translated into soaring net production profits that reached their highest levels since the inception of MBA’s annual report in 2008.”

Average production volume was $4.5 billion per originator, up from $2.7 billion in 2019. Average production profit rose to 157 basis points from 58 in 2019. Total production revenues rose to 434 basis points, up from 356 in 2019. Surprisingly, loan production expenses, were more or less flat at $7,578. Productivity might have been the driver, which rose from 2.3 loans per employee to 3.3 loans per employee.

Mortgage applications fell 3.7% last week as purchases fell 1% and refis fell 5%. The 10 year reached 1.7% last week, and now seems to be heading lower, at least for the time being.

The MBA is urging Washington to allow some additional flexibility on the GSE caps for investment properties and high risk loans. MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said a more flexible approach and timeline would allow the GSEs to come into compliance by making necessary adjustments to their automated underwriting systems on a prospective basis. “This solution would alleviate concerns about existing loan pipelines and make lender-specific caps unnecessary,” he said. “Gradual changes also would provide time for private capital alternatives to develop the operational capacity to better serve these market segments.”

Import prices rose 1.2% MOM and 6.9% YOY, while export prices rose 2.1% MOM and 9.1% YOY. The import number was driven by energy, while the export number was driven by agricultural. Take these numbers with a grain of salt; COVID-19 related shutdowns (especially during the heavy lockdown days) are going to produce some strange year-over-year comparisons.

26 Responses

  1. Question: Why would anyone be willing to be a police officer in Minnesota?

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    • Or Portland or Seattle.

      Scott, do you follow Andy Ngo’s Twitter feed?

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      • jnc:

        Scott, do you follow Andy Ngo’s Twitter feed?

        I’m not on Twitter, so no. But I know who he is and have seen a lot of his reporting. He is one of the few people really covering the Antifa/BLM violence.

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    • I can’t think of a single good reason. I wouldn’t blame them if they all went on strike

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    • I suspect the reason the crime/murder rate in many large cities has increased is because the police are taking a much more reactive role in policing rather than a proactive role. The reason for that is the whole BLM / Defund the police movement. That said, I’ve advocated for less laws and less enforcement overall so there would naturally be an uptick in crime as a result. Is it tolerable? Well, it is for me as I don’t live there and my suburb of League City, TX is very low crime. That’s why I live here.

      In the day and age of computers and CCTV cameras, do the police need to pull people over for traffic violations anymore? My answer is no, mail the owner a ticket and be aggressive in collecting the fee. If there is reckless driving going on it would make sense for a stop, but if it’s a bad taillight or something, speeding, changing lanes illegally, expired registration, mail them a ticket.

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      • “because the police are taking a much more reactive role in policing rather than a proactive role”

        FODO …

        “fuck it, drive on”

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        • Exactly. High city crime seems to get surburbanites anxious though I don’t know why. When Trump was POTUS a lot of Republicans encouraged Trump to go in there a knock heads, hell, I might have been one of them. In hindsight however, I’ve asked myself why I care (if indeed I did, I honestly cannot remember) and the answer is that I don’t. If the residents tolerate it, they’re the one’s living there.

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        • Exceedingly tone deaf and at variance from the party base and the country. If this is the current standard bearer for the Republicans they deserve to lose.

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  2. Apparently you only have to identify officers involved in fatal shootings in certain circumstances.

    https://www.washingtonpost.com/local/public-safety/ashli-babbitt-capitol-police-shooting/2021/04/14/452fb414-666a-11eb-886d-5264d4ceb46d_story.html

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  3. Another Substack to consider:

    https://www.inquiremore.com/p/welcome-to-inquire

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    • This seems to be new. You know these guys?

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      • It is. One of the guys gets cross posted into Greenwald’s Twitter feed all the time.

        Ex-Obama campaign guy who like Greenwald and Taibbi thinks the current direction is crazy.

        Article he wrote right after the election is illustrative.

        https://americanaffairsjournal.org/2020/12/the-lefts-culture-war-rebranding/

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        • good read

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        • Excellent. Really good article.

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        • Agree with nova and KW…good article.

          Two nitpicks. One, the D embrace of racial demagoguery can’t be blamed entirely on the emergence of The Squad. Remember Biden telling a black audience in 2012 that Romney wanted to “put y’all back in chains!”? They’ve been playing this disingenuous race game for a lot longer than AOC.

          Two, the author refers to “Republicans’ weaponization of the issue”. That characterization really needs to be put out to pasture by any serious observer. It’s the same old, tedious “Republicans pounce” framing. And coming in the context of an article that otherwise is making the exact same criticism that the R’s are making, it lacks a bit of self-awareness.

          Otherwise, though….as KW/nova said, a good read.

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        • Regarding the emergency of racial demagoguery, that’s been happening basically since Jesse Jackson and Al Sharpton illustrated that it could be successful in achieving goals. Just at lower levels. I think a lot of people are at a point where they are switching from Democrat/center-left to a kind of “homeless liberalism” so are now more aware of what was happening at a lower volume that a lot of conservatives were aware of but good liberals could safely dismiss. So some of the positioning in time has to do with when they finally started really hearing it.

          I don’t object to the weaponization terminology, really. It may have been unevenly applied but Republicans should weaponize these issues (more so than they have), just as Democrats have weaponized the Jan. 6th Capitol riots, weaponize every mass shooting, and weaponize any fatal confrontation between the police and a minority.

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        • Mark/jnc….what do you guys make of the court packing scheme now being pushed by the D’s? A good trade for getting Trump out of office?

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        • Republicans weren’t going to hold the presidency forever, even if Trump won.

          This is a fight that was always coming.

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        • KW:

          This is a fight that was always coming.

          I agree, which is what makes it all the more galling. It’s not like this eventuality was an unpredictable and surprising result of electing Biden. It was a quite readily knowable consequence.

          It’s not the “fight” that bothers me. It’s the fact that the other side has gained the power to win it, and worse they did so through the support of a good number of people who were ostensibly allies to my side, just because they couldn’t stand Trump. To me that raises the obvious question…is the cost of getting rid of Trump worth it?

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        • I laughed.

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        • they did so through the support of a good number of people who were ostensibly allies to my side

          They are not allies. They are part of the Uniparty–or politicrats, as I often call them. They are feudal lords that may appeal to the peasants with rhetoric but have no desire to represent their interests, or any interests other than their own and their peers in the feudal upper class.

          To me that raises the obvious question…is the cost of getting rid of Trump worth it?

          Depends. To Jonah Goldberg? Jen Rubin? Bill Kristol? Obviously. To Lisa Murkowski? Lynn Cheney? Almost certainly. There are many folks in the GOP who, like most of the the folks in the Democrat party, that aren’t there to represent the interests of their constituents. IMO. Trump in many ways represented a danger to their interests, so he might as well have been a member of an opposition party.

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        • Scott

          it lacks a bit of self-awareness.

          That is the calling card of the left

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        • Nice turn of phrase:

          “social media victim-celebrities”

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        • No, expanding the court isn’t worth the trade of getting Trump out of office, but like their other bill on reparations that was recently announced, I don’t think it’s going anywhere.

          https://www.washingtonpost.com/politics/2021/04/15/joe-biden-live-updates/

          The fringe bills are getting more media attention this time because the media is now more activist.

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        • jnc:

          I don’t think it’s going anywhere.

          I hope you are right. There is a reasonable chance it is all for show, but given where the D party is right now, I wouldn’t put any money on it.

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        • Mean tweets Trump SCOTUS packing! Don’t @ me!

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