The rate of home price increases across has continued to decrease across the country. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a 4.3 percent annual gain in January, down from 4.6% in the previous month. [caption id="attachment_9471" align="alignleft" width="300"] David Blitzer[/caption] The 10-City Composite annual increase came in at 3.2 percent, down from 3.7 percent in the previous month. The 20-City Composite posted a 3.6 percent year-over-year gain, down from 4.1% percent in the previous month. Las Vegas, Phoenix and Minneapolis reported the highest year-over-year gains among the 20 cities. In January, Las Vegas led the way with a 10.5 percent year-over-year price increase, followed by Phoenix with a 7.5 percent increase and Minneapolis with a 5.1 percent increase. Only one of the 20 cities reported greater price increases in the year ending January 2019 versus the year ending December 2018. Before making a seasonal adjustment, the National Index posted a month-over-month decrease of 0.2% in January. The 10-City and 20-City Composites reported 0.3 percent and 0.2 percent decreases for the month, respectively. After seasonal adjustment, the National Index recorded a 0.2 percent month-over-month increase in January. The 10-City Composite did not post any gains, and the 20-City Composite posted 0.1 percent month-over-month increase. In January, five of 20 cities reported increases before seasonal adjustment, while 14 of 20 cities reported increases after seasonal adjustment.

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“Home price gains continue to shrink,” says David M. Blitzer, Managing Director and chairman of the index committee at S&P Dow Jones Indices. “In the year to January, the S&P CoreLogic Case-Shiller National Index rose 4.3 percent, two percentage points slower than its pace in January 2018. The last time it advanced this slowly was April 2015. In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018. Only Phoenix saw any appreciable acceleration. Some cities where prices surged in 2017-2018 now face much smaller increases: In Seattle, annual price gains dropped from 12.8 percent to 4.1 percent from January 2018 to January 2019. San Francisco saw annual price increases shrink from 10.2 percent to 1.8 percent over the same time period. Mortgage rates are as important as prices for many home buyers. Mortgage rates climbed from 3.95 percent in January 2018 to a peak of 4.95 percent in November 2018. Since then, rates have dropped to 4.28 percent as of mid-March. Sales of existing single-family homes slid gently downward from the 2017 fourth quarter until January of this year before jumping higher in February 2019. Home sales annual rate dropped from 5 million units in February 2018 to 4.36 million units in January 2019 before popping to 4.94 in February. It remains to be seen if recent low mortgage rates and smaller price gains can sustain improved home sales.”  

Independent mortgage banks and mortgage subsidiaries of chartered banks continued to lose money on every loan they originated in the fourth quarter—but the loss was far smaller.

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $200 on each loan they originated in the fourth quarter of 2018, down from a reported gain of $480 per loan in the third quarter, according to the Mortgage Bankers Association’s released Quarterly Mortgage Bankers Performance Report.

“Independent mortgage bankers continued to struggle in this very competitive mortgage market environment, with the average pre-tax net production income per loan reaching its lowest level since the inception of our report in 2008,” said Marina Walsh, vice president of industry analysis for the MBA. “Among the headwinds for mortgage bankers were lower volume, lower revenues and higher costs relative to the previous quarter.”

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And for most organizations mortgage servicing didn’t bring them closer to profitability.

That’s because “mortgage servicing right impairments resulting from December’s drop-in interest rates hurt profitability,” said Walsh. “Including all business lines (both production and servicing), only 44 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter.”

Key takeaways from the performance report are as follows:

• Average production volume was $440 million per company in the fourth quarter of 2018, down from $474 million per company in the third quarter of 2018. The volume by count per company averaged 1,799 loans in the fourth quarter, down from 1,948 loans in the third quarter. For the mortgage industry as a whole,  production volume in the fourth quarter was lower compared to the previous quarter.
• The average pre-tax production loss reached 11 basis points in the fourth quarter, down from an average net production profit of 20 basis points in the third quarter, and down 20 basis points

  [caption id="attachment_11282" align="alignleft" width="242"] Walsh: Production revenue and the loss per loan decreased in the Q4.[/caption]

  from the fourth quarter of 2017, a new low. Since the report began in 2008, production profitability was in the red in only two other quarters, the first quarter of 2014 and the first quarter of 2018.

• The purchase share of total originations, by dollar volume, decreased to 79 percent in the fourth quarter of 2018, from a  high of 82 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 74 percent last quarter.
• The average loan balance for first mortgages was $253,689 in the fourth quarter, down from $255,539 in the third quarter.
• The average pull-through rate (loan closings to applications) remained unchanged at 75 percent in the fourth quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 351 basis points in the fourth quarter, down from 358 basis points in the third quarter. On a per-loan basis, production revenues decreased to $8,411 per loan in the fourth quarter, down from $8,654 per loan in the third quarter.
• Net secondary marketing income decreased to 269 basis points in the fourth quarter, down from 280 basis points in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,466 per loan in the fourth quarter from $6,802 per loan in the third quarter.
• Total loan production expenses--commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations--increased to $8,611 per loan in the fourth quarter, up from $8,174 per loan in the third quarter. For the period of the third quarter of 2008 to last quarter, loan production expenses have averaged $6,367 per loan.
• Personnel expenses averaged $5,636 per loan in the fourth quarter, up from $5,405 per loan in the third quarter.
• Productivity decreased to 1.8 loans originated per production employee per month in the fourth quarter, down from 1.9 in the third quarter. Production employees includes sales, fulfillment and production support functions.
• Including all business lines (both production and servicing), 44 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 71 percent in the third quarter.

Resitrader has launched the first in a series of application programming interfaces designed to create an integration with investors’ in-house systems and automate critical functions throughout the digital loan trading process. Resitrader is the digital-loan trading platform from Optimal Blue.

The API allows the investor to connect to the Resitrader marketplace and automate pricing, offer pick-up, bid-tape retrieval, bid placement and return, seller assignment, trade confirmation and commitment.

“The Resitrader APIs are another step forward as we create an open architecture that links buyers and sellers across the Optimal Blue platform,” said Scott Happ, CEO of Optimal Blue. “Our hedge advisory clients, as well as those that self-hedge or use another hedge provider, will benefit from this new technology as we continue to pursue our goal of serving all clients and vendors across the secondary market.”

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Designed specifically for innovative investors operating at scale with an existing trading technology platform in place, the API will embed and trigger the capabilities of Resitrader--without requiring the investor to ever leave their own in-house systems.

[caption id="attachment_5372" align="alignleft" width="190"] Scott Happ[/caption]

The investor is able to actively engage with Resitrader’s digital loan-trading marketplace and hundreds of participating buyers and sellers, increasing productivity without the prerequisite of training on a new platform. They can monitor deal flow in real time as the systems communicate directly on pricing and trading, and benefit from the speed, accuracy, and scalability provided.

Sellers gain faster responses, increased accuracy, and the ability to reallocate most of their time to making more informed execution decisions.