by Calculated Risk on 11/03/2015 08:22:00 PM

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for October. This report is for private payrolls only (no government). The consensus is for 185,000 payroll jobs added in October, down from 200,000 in September.

• At 8:30 AM, the Trade Balance report for September from the Census Bureau. The consensus is for the U.S. trade deficit to be at $41.1 billion in September from $48.3 billion in August.

• At 10:00 AM, the ISM non-Manufacturing Index for October. The consensus is for index to decrease to 56.7 from 56.9 in September.

Some interesting data released last week from Freddie Mac: Insight & Outlook The following text and graphs are from Fannie Mae:


Click on graph for larger image.

The recent trend of lender de-concentration in the mortgage industry continues. For example, in 2014 large lenders – those who originated at least $10 billion – represented about 30 percent of all conventional originations versus 41 percent in 2013. Virtually all of the de-concentration has come from the very largest lenders. According to data from Inside Mortgage Finance, the top 5 originators accounted for about 34 percent of all originations in 2014, down from 62 percent in 2009. The gain in share has been spread across a broad range of smaller lenders; the share of originations from lenders ranked 21 or higher increased from about 14 percent in 2009 to over 42 percent in 2014 (Exhibit 3).

The market share of non-depository, independent mortgage companies increased sharply in 2014. With the collapse of the housing and secondary mortgage market during the Great Recession, many independent mortgage companies went out of business, especially those focused on subprime lending, and the market share of this group dropped sharply. Since then, the industry has more than recovered its former market share with independent mortgage companies accounting for about 47 percent of home-purchase loans and 42 percent of refinance loans in 2014 (Exhibit 4). These shares are higher than at any point in the past 20 years

Despite some reports attributing this rise to nonconventional lending and a willingness to originate riskier loans, the HMDA data indicate this rise has been broad-based across different types of loans and demographic groups. However, the increase in lending by independent mortgage companies has been concentrated in states in the West and Southwest, where they focus mostly on originating home purchase loans.

Nonbanks have less stable sources of financing and less financial oversight than banks. Some experts have expressed concern that these lenders are more likely to fail in an economic downturn and thus expose the GSEs and Ginnie Mae to losses.

CR Comment: This is a significant shift in lending, especially for purchase lending. If these smaller, independent lenders are not fully represented in the MBA purchase index, then the index would understate the growth in the housing market (something I wondered about a few years ago). At that time, MBA's chief economist Mike Fratantoni told me:

[I]n the last couple of years ... independent mortgage bankers have accounted for a fast growing share of the purchase market ... We have actively recruited independents and smaller banks to get better coverage of the purchase market. ... It is likely that many of the lenders not in the survey have a higher purchase share and lower refi share.

The index is very useful, but it has probably been difficult to keep up with this shift in lending.