Tom Lamalfa: May 2022 Secondary Market Conference Survey Report and Scorecard
(Tom Lamalfa is a 44-year veteran of mortgage market research, whose focus in recent years has been on federal housing policy. He is president of TSL Consulting, Cleveland Heights, Ohio. His semi-annual reports on the housing and mortgage finance industries appear regularly in MBA NewsLink. He can be reached at email@example.com.)
1. What was your firm’s total production volume in all channels last year? $30.7b mean/$7.7b median
2. In how many production channels does your firm operate? 2
3. How many people does your mortgage company currently employ? 1050
4. What percent of your firm’s production is purchase business this year? 65%
5. What percent of this year’s production is conventional GSE business? 65%
6. Combined, what percent is FHA-/VA-/ USDA-insured business this year? 20%
7. What percent of this year’s production is non-agency jumbo? 14%
8. What percent of your volume is non-QM or non-prime this year? 0%
9. How important are ARMs in the jumbo market today? (1-10) 6
10. Scaled 1-10, how important is the return of ARMs to the housing market? 7
11. Are there enough ARM investors in the market today? Y-11 / N-20
12. By how much has refinance volume contracted at your firm this year? 60%
13. Have you expanded your firm’s sales force in 2022? Y-21 / N-11
14. Scaled 1-10, how hot-to-cold has the housing market been this year? 3
15. What percent of your firm’s employees are currently in the office full time? 15%
16. Permanent WFH accounts for what percentage of your firm’s workforce? 40%
17. Are the other FT employees in the office more than 2 days/week or less than 3? M-9 / L-20
18. Do you expect this percentage to change much by year end? Y-8 / N-23
19. What percent of sr mgmt currently works from home 2 or more days/week? 34%
20. The mortgage industry is said to be experiencing an LO recruiting frenzy. Agree? Y-23 / N-9
21. Are sizeable layoffs of staff anticipated this year, industry wide? Y-32 / N-0
22. What letter grade would you give FNMA for its interaction with your firm in 2022? 1 / 16 / 13
23. What letter grade would you give FHLMC for its interaction with your firm in 2022? 5 / 17 / 8
24. Who is providing better all-around service this year, Fannie or Freddie? Fa-12 / Fr-17
25. Is the FHFA guilty of micro-managing the GSEs? Y-25 / N-6
26. Should AH goals for the GSEs be raised next year as planned? Y-15 / N-16
27. Is the federal government’s role in housing too large today? Y-20 / N-12
28. Has there been a marked increase in sales of servicing of late? Y-21 / N-3
29. In bps, how much have MSRs improved since the year began? 25 bp
30. Has liquidity in the MBS market eroded in the past few months? Y-21 / N-11
31. Is the weakened liquidity adversely affecting the pricing of mortgages? Y-21 / N-6
32. Scaled 1-10, how important is cost control today and in the months ahead? 9.5
33. Do you expect to increase your firm’s MI-insured lending this year? Y-21 / N-9
34. Is price the paramount determinant in MI allocations today? Y-17 / N-14
35. Should IMBs be required to fully comply with CRA? Y-10 / N-22
36. Will IMBs gain additional market share this year? Y-12 / N-20
37. Do you expect a recession in the next 18 months? Y-28 / N-3
38. Several economists are predicting a housing bubble. Do you see one in the next year? Y-8 / N-24
39. Do you expect 2022 will see lots of M&A activity in the mortgage industry? Y-28 / N-4
40. Do you expect the volatility in the bond market to persist this year? Y-30 / N-2
41. Scaled 1-10, how difficult a year do you expect 2022 to be for lenders? 8
42. Scaled 1-10, how bullish are you on the outlook for the residential market in 2022? 5
43. Do you expect margin pressure to worsen as the year unfolds? Y-25 / N-7
44. Do you expect inflationary pressures to begin to subside by the fall? Y-18 / N-14
45. How much of a shrinkage do you expect in the number of lenders this year and next? 17.5%
46. By how much do you expect the industry’s revenue to decline this year from last? 47.5%
47. By how much do you expect the industry’s earnings to decline this year from last? 60%
48. Are new markets being developed for second homes & investor properties? Y-20 / N-11
49. How would you rate the mood among mortgage executives today? (1-10) 4
50. Is it a good time to sell a mortgage company with a strong purchase business? Y-23 / N-9
51. Is it a good time to buy a mortgage company with a strong purchase business? Y-24 / N-8
52. Does your firm offshore either servicing or processing functions? Y-11 / N-21
53. Scaled 1-10, how bullish are you on the stocks of publicly-traded mortgage companies? 2
54. Do you anticipate a big jump in residential for-sale listings in 2022? Y-7 / N-25
55. Scaled 1-10, how financially strong is the home-buying consumer today? 7
56. Scaled 1-10, how big a problem is racial bias in appraisals? ( > 7 = systemic) 5
57. Will climate be an increasingly important risk factor in the years ahead? Y-26 / N-6
58. Has Better.com become the industry model for how not to lay off staff? Y-31 / N-0
59. Did housing wealth decline for all but affluent households between 2010-2020? Y-4 / N-25
60. Are buy-to-let investors purchasing a growing percentage of SFD homes? Y-29 / N-2
61. Scaled 1-10, how important is blockchain to your firm? 1
62. Scaled 1-10, how important are inclusiveness & diversity at your firm? 9.3
63. How much do you expect house prices to increase this year? 7%
64. At what fixed-rate interest does the purchase market collapse? 7%
What follows are the findings of a semi-annual survey of senior mortgage banking executives. The surveys, which were conducted in mid-May, were of mortgage veterans at 32 different mortgage companies — half financial intermediaries, largely commercial banks; and half non-banks, or IMBs (independent mortgage banks) in the report’s parlance.
The surveys are conducted using my “panel of experts,” a group of individuals assembled to serve as a microcosm of the MBA’s lender members. The experts are chosen to represent all faces of the industry. The panel was set up based not only on type of lender, but also on origination volume, the number of production channels the firm operates, and the geographic scope of markets served.
The purpose of the research is to ascertain the thinking, attitudes and expectations of an industry through surveys of executives who are well known to me. Many of those surveyed have been part of the survey group since it began 14 years ago. Changes to the panel’s composition have largely been made to adjust for the share shift from banks to IMBs in recent years. The distribution of share is a key component in the panel’s structure. More on this later.
Following a review of the compiled responses to 64 questions covering a myriad of issues and topics, will come a more detailed examination of the survey methodology, history, questionnaire, survey participants, and the industry model designed to survey an industry and produce strong reliable results.
Finally, it is recommended that readers use the Scorecard (found at the top of this story) as a guide to the narrative, since questions are often grouped by topic to economize on words.
The best way to find out what someone thinks is to ask.
Q1 asked the executives about their firm’s total production volume in all channels in 2021. The responses – always un-weighted by volume – were a group mean of $30.7 billion and a median of $7.7 billion. The range among the 32 firms was from $185 million (a CA-based mortgage brokerage) to $235 billion. Q2 asked about the number of production channels from which the firm acquired mortgages. The median was 2, with 14 in retail only, 10 operating in all 3 channels, and 8 others operating in retail and/or correspondent or wholesale.
How many people does your mortgage company currently employ, asks Q3? The mean was 2689, the median 1050, the mode 250, all within a range of 7 to 25,000 employees.
Q4-8 inquired about the various types of mortgage loans produced thus far this year. The median percentages of purchase business, conventional GSE business, government-insured business, non-agency jumbo, and non-QM/non-agency prime were as follows: purchase business 65%; conventional GSE 65%; FHA/VA/USDA combined 20%; nonGSE jumbo 20%; and non-QM/non-prime less than 1%.
Q9-11 dealt with ARMs. I wanted to know how important they are to the jumbo market, how important they may become to the housing market over the balance of 2022, and whether there were enough ARM investors to satisfy prospective market needs. On a scale of 1-10, low to high, the collective median response to the question about ARMs importance to the jumbo market today was 6. A ranking of 7 was given to the importance of the return of ARMs to the housing market, buoyed perhaps by expectations of a more steeply sloped yield curve. As to whether there were a sufficient number of ARM investors in the market today, there were 11 affirmatives and 20 noes – the verdict, too few.
Q12 asked the executives by how much their refinance volume has contracted this year versus the same period (first 4 months +) last year. The median was 60%, the mean 54%, the mode 80, with a range of zero (a home builder’s mortgage company) to 80%.
Have you expanded your sales force this year, asks Q13? Nearly twice as many firms have added sales personnel as haven’t – 21:11. And how hot or cold is the housing market today, asks Q14, scaled 1-10? With a median of 3, the market is viewed as still quite hot. The mean was 3.8, the mode a 1, with a range of 1-8.
Q15-19 focused on employees and where they were working, namely in the office, remote on a permanent basis, the office attendance of those not in the office full time, whether this workforce arrangement would carry through at least the remainder of 2022, and what was the in-office situation for senior management. The median in-office full time was 15%, the mean was 24.5%, the mode 10, all within a range of 3% to 85% in the office full time. For permanent work from home (WFH), the median was 40%, the mean 39.8%, the mode 50, all within a range of 5% to 90%. As for the other full-time staff, how much time do they spend in the office? The others are mostly in the office less than 3 days a week, with fewer than half as many in the office more than 2 days a week. Q18 found that nearly 3 times as many don’t expect these percentages to change much in 2022. And as for senior management’s in-office attendance, about one-third work from home 2 or more days a week. The mean was 39, the mode 50, with a range of zero to 100% working from home at least twice a week.
Q20-21 asked about a reported LO recruiting frenzy said to be going on, and about the prospects for sizeable industrywide layoffs. More than twice as many executives noted the recent LO recruiting frenzy and all 32 executives anticipate sizeable (large) reductions in staff in 2022. This was the first question with a unanimous response.
Q22-24 inquired about Fannie Mae and Freddie Mac. I wanted to know first what letter grade each received – A to F with pluses and minuses – and which firm got the tip of the hat for best all-around service. Fannie received 1 A, 16 Bs, and 13 Cs. Freddie received 5 As, 17 Bs and 8 Cs. Freddie also got the nod for providing the better all-around service by a margin of 5 — Fannie 12 hat tips and Freddie 17.
Q25-27 concerned the FHFA, the AH (affordable housing) goals the FHFA sets for Fannie and Freddie, and more broadly the size of the federal government’s role in housing. Is the FHFA guilty of micro-managing the GSEs, asks Q25. More than 4 times the number of executives responded yes than no, 25 to 6. As for still higher AH goals, a near standoff, 15 affirmatives and 16 negatives. And concerning the size of the federal government’s role in housing, about twice as many report it’s too large, as not.
Q28-31 dealt with sales of servicing in 2022, how much the value of MSRs has risen thus far this year, MBS liquidity of late, and the pricing of mortgages (relative to spreads with other fixed-income instruments). It was learned that nearly all noted a marked increase in the sale of servicing — 21 to 3; a median improvement of 25 bp in the value of servicing this year; about twice as many said that liquidity eroded somewhat in the MBS market in recent months; and most agreed that weakened liquidity widened the treasury to MBS spread.
Q32 asked how important cost control is for the mortgage industry this year. Reflecting great importance, it received a 9.5 on our 1-10 scale.
Q33-34 inquired about MI-insured lending prospects this year, and whether MI was largely a commodity as evidenced by the question of whether price was the key determinant in the allocation of the business to the various MICs. Due (thanks?) to the return of the purchase market this year, more than twice as many lenders expect to originate more MI-insured loans this year than they did in 2021. As for price being the paramount determinant in which MIC gets the MI, it is, but only very slightly, 17-14.
Q35 and 36 involved two aspects of IMBs: CRA compliance, and whether it’s likely that IMBs will gain additional market share this year. Result? More than twice as many executives think that IMBs should not be required to fully comply with the CRA as do –10 yesses vs. 22 noes.
Q37-38 asked about the likelihood of a recession in the next 18 months, and whether the executives saw a housing bubble developing. By the widest of margins, industry executives expect a recession by the end of 2023: 28 to 3. The good news is that no housing bubble is predicted, with 3 times the noes as yesses.
Q39 asked if lots of mergers and acquisitions (M&A) were expected this year (due to difficult market conditions). And the answer – absolutely, as 7 times more respondents answered yes than no. Do you expect the recent volatility in the bond market to persist this year, asked Q40? Yes, yes, yes, the executives do foresee market volatility ahead by another wide margin: 30 affirmatives vs. 2 not expecting a wild ride in the MBS market.
Related to the last question, Q41 and Q42 asked respectively how difficult a year they expected this year to be for lenders, and how bullish each of the executives was on the
outlook for the residential market again this year. Both questions were scaled 1-10. Those surveyed foresee a very challenging year for mortgage lenders, with a median of 8, a mean of 8.3, a mode of 9, all within a 6-10 range. There were 16 9s or 10s among the responses. As for their outlooks on the (aggregate) residential market, there was a very middle of the road median of 5, a mean of 4.8, a mode of 5 and a range of 2-10.
Q43 and 44 concern pressures on margins and (on costs) from inflation. As for worsening margin pressure, oh yes, it’s expected said 25 of 32 executives. Concerning inflationary expectations possibly beginning to subside by the fall months, maybe, but not great certainty, with 18 expecting inflation to slow by the fall and 14 disagreeing.
How much smaller (in the number of firms) will the industry be at the end of 2023 than it is now, asks Q45? The median answer was that there would be 17.5% fewer firms. The mean was a nearly identical 17.6%, the mode was 20%, and the range was for 7-30% fewer firms to exist 18 months hence.
Q46 and 47 were related, as they asked by how much each executive expected first revenue and then earnings to decline in 2022. The expectations aren’t so good, as revenue is expected to drop 47.5% at the median, 45% at the mean, a mode of 50%, with a 20-80% range. Meanwhile, expectations for earnings appear worse still, namely a median decline of 60%, a mean of 58.4%, a mode of 50%, and a range of 25-80% down year over year.
Q48 asked the executives if they knew of new investor markets being developed for second homes and investment properties. Nearly twice as many knew of new investors for these products than didn’t. And how’s the mood among mortgage executives today? It could be better, with a 4 median, a 3.9 mean, a 3 mode, and a 1-7 range. (Where, or where are all the optimists?)
Is 2022 a good time to buy, or to sell, a mortgage company with a strong book of purchase business, asked Q50-51? Both transaction opportunities are viewed favorably, by wide and nearly identical margins, 23 to 9 and 24 to 8 respectively.
Q52-55 dealt with offshoring mortgage functions, publicly traded mortgage company stocks, for-sale listing prospects, and the home-buying consumer’s perceived financial wherewithal. About one-third of the 32 firms reported offshoring servicing and/or processing functions, 11 to 21. Meanwhile, no bulls on the stocks of publicly traded mortgage companies, as the median response was a quite bearish 2. The range was 1 to 7.5, the mode was a 1, and the mean 2.6 of 10.
How about the inventory situation, Q54 asked? Did the executives anticipate a substantial jump in for-sale listings this year? It appears not, as only 7 of 32 executives felt they could make the case for a significant increase in for-sale listings this year. And as for the consumer’s strength? Today’s home-buying consumers scored a 7 of 10 in terms of how financially strong they were regarded. Both the median and mode scored 7s, the mean was 6.6, all within a range of 3-8.
How big a problem is racial bias in appraisals, asks Q56? It’s seen as a problem by most, scoring a 5 of 10, but it’s not viewed as systemic, a score of 7+. The mean was 4.8, the mode 5, and the range was 2-8. Q57 wondered about climate change and whether it was seen as an increasingly important factor in risk assessment in coming years. Yes it will be an important factor in risk assessment, reported 26 of the 32 executives.
Q58 asks if Better.com (the mortgage company) became the industry model for how not to lay off staff. It was unanimous: 31 to 0. The message: Don’t follow Better’s lead. (Better was the 17th largest lender in 2021.)
Q59 asks, Did housing wealth decline for all but the wealthiest homeowners in the decade 2010-2020 (as maintained in a recent NAR study about housing wealth)? It did not decline for all households but the wealthy, said 25 of the 29 executives answering. Q60 asks if buy-to-let (rent) investors are purchasing a growing percentage of single family detached homes. Indeed they are, said 29 of 31 executives responding.
How important is the blockchain to your firm today, Q61 asks? On a scale of 1-10, with 1 being completely unimportant, the question generated a median of 1, a mode of 1 and a mean of 2.4. Q62, however, generated a composite score of 9.3, a mean of 8.5, and a mode of 10. It had sought a ranking on the importance of inclusiveness and diversity at their firms. They are a big deal, clearly.
The final two questions asked about expectations for house prices in 2022, and the level to which a fixed-rate mortgage must go for purchase activity to collapse. House prices are expected to rise 7%, per the median and mean. The range was from zero to 20%, and the mode 10. As for the rate level that is felt to crash the mortgage market, the median and mean rate is 7%, the mode was 6.5%, and the range 6-9%.
So there it is, what was learned from 32 senior industry executives about 64 issues and topics germane to the mortgage bankers.
This survey began in May 2008 and has been conducted every May and October since then. They are conducted in conjunction with the MBA’s National Secondary and Capital Markets Conference in May and the MBA Annual Convention each October. The 6-month intermission allows for changes and trends to be monitored and measured, and for new questions to replace earlier ones.
The purpose of the research is to gather the representative thinking and expectations of an entire industry through a small, almost scientifically selected (as reflected in MBA’s lender membership) sample size. It’s done by assembling a panel to represent the universe of banks and IMBs, including firms of all sizes, various operating channels, scope of markets and places of domicile. The objective being the creation of a microcosm of the mortgage banking community that can be used to sample the industry.
Among the 32 firms surveyed were 2 thrifts, a credit union, 16 commercial banks, a realtor-owned firm, 2 homebuilder-owned companies, 5 publicly owned firms, a private equity-owned firm, a mortgage brokerage, and several family-owned companies. (As broad a cross-section as found in HMDA.)
The surveys are conducted both face-to-face at the conference (or convention) or over the phone. The questions are always read to those surveyed. After all the surveys are completed, a spreadsheet of responses is prepared, a Scorecard is created, a report of findings is written and distributed to those surveyed, and the results are published shortly after in MBA Newslink.
Those interviewed for the May survey included 13 CEOs or Presidents, 6 EVPs, 11 SVPs, and 2 VPs. Per HMDA data, 21 of the firms surveyed are among the 100 largest lenders in 2021.
As readers recognize, this Report is a listing of responses to questions, not an analysis of the information gathered. An analysis of the key findings will be completed in the days ahead and posted to MGIC’s blog, MGIC Connects.
Finally, my thanks to the sponsor of this survey, MGIC, and especially to the 32 mortgage executives who participated in this 29th survey in the series.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)