Tom Lamalfa: MBA Annual Convention & Expo 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 tom.lamalfa@gmail.com.)

What follows are the findings of a semi-annual survey of senior mortgage banking executives. The surveys, which were conducted in mid-October, were of mortgage veterans at 33 different mortgage companies — 17 financial intermediaries, largely commercial banks; and 16 non-banks, independent mortgage banks or IMBs.

The surveys are conducted using my “panel of experts,” a group of individuals assembled over the years to serve as a microcosm of 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, number of production channels in which the firm operates, place of domicile, and 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 in 2008. Changes to the panel’s composition have largely been made to adjust for the market 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 61 questions covering a myriad of contemporary issues and topics, will come a more detailed examination of the survey methodology, history, questionnaire, survey participants, and the industry model designed to produce strong reliable results.

Finally, it is recommended that readers use the Scorecard (found at the end of the Report) as a guide to the narrative, since questions are often grouped by topic to economize on words.

Findings
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 the first 9 months of 2022, through September. The responses – always un-weighted by volume – were a group mean of $14.1 billion and a median of $6.0 billion. The range among the 33 firms was from $50 million (a CA-based mortgage brokerage) to $85.9 billion. Q2 asked about the number of production channels from which the firm acquired mortgages. The median was 2, with 15 in retail only, 8 operating in all 3 channels, and 10 others operating in retail and/or correspondent or wholesale.

How many people does your mortgage company currently employ, asks Q3? The mean was 2063, the median 1000, all within a range of 5 to 18,000 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 80%; conventional GSE 65%; FHA/VA/USDA combined 15%; non-GSE jumbo 8.5%; and non-QM/non-prime less than 1%.

Q 9-11 dealt with ARMs vs. buydowns. The questions were how much of each lender’s volume consisted of ARMs production, how important buydowns were this year, and are there enough ARM investors in the market today. ARM production accounted for a median of 7%, with a mean of 14%, a mode of 6%, and a range of zero to 70%. As for buydowns, the mean was pushing 5%, the median was 4%, the mode was 1, amid a range of 1-10 on a scale of 1-10, where the importance scale went from low to high, worst to best. (Based on experience, 1-3 are the equivalent of a grade of D, 4-6 a B grade, and 7 and higher an A in importance.). Concerning the number of ARM investors, only 5 lenders said there was enough, compared to 24 who thought there were too few. The remaining 4 didn’t know the answer and stated so.

Q12 asked if the executives thought that GSE ARM MBS executions would be competitive with bank ARM pricing in 2023. Here only 5 of 31 said GSE ARMs would be competitive with the pricing of portfolio lenders next year.

Q13-15 addressed the income contraction from refinancing year over year, whether their firms’ MI-insured lending this year exceeded 2021, and how “hot” each ranked the purchase market in 2021. Refi income was reported to be down 80% versus last year, the mean was off 68%, the mode was 80%, and the range was zero (a homebuilder-owned mortgage company and a realtor-owned company) to 95%. Nineteen firms said their MI-insured business was higher this year than last (due of course to purchase being a larger percentage of total originations) compared to 13 who reported flat levels of MI business this year vs. last. How hot did the executives deem the purchase market throughout the year, the response was a 6 of 10 for both the mean and median, within a scoring range of 2-9.

Q16-21 dealt with the lenders’ work force — specifically, the percentage of employees in the office full time, the percentage that were permanent work-from-home employees (WFH), whether changes in either of those percentages were expected in 2023, whether their individual firms had made layoffs of 10% or more year ago percentages, whether they felt more layoffs lay ahead, and whether layoffs at other firms brought new LOs (loan officers) to their companies. Tallied responses indicated that 20% of the firm’s employees worked full time in the office, 25% worked remotely and only 11 of the 33 companies expected much change in those percentages next year.

The range of in-the-office employees was from only 1-80%, with a mode of 20. Permanent WFH ranged from 5-90% with a mean of 35%, a median of 25% and a mode of 40%. The median was twice as high for banks, 40% versus 21% at IMBs. As for expected changes in their numbers, twice as many reported little change as not, and when they did it was buoying in-office employment next year.

As for layoffs of 10% or more, about twice as many lenders had staff reductions of at least that number in the last 12 months, 21 firms compared to 11. Unfortunately, more than 3 times as many executives as not think that more layoffs are likely in 2023. As to whether LO layoffs at other firms allowed their firms to add LOs, about half indicated they were able to add LOs to their production staffs versus those not recruiting additional LOs, 14 yeses versus 17 noes.

Q22-27 all involved Fannie Mae and Freddie Mac, the GSEs. On a 10 point scale, executives were asked how hard they felt the GSEs were working to earn their business. The mean, median and mode were 5 within a scoring range of 1-8. As for letter grades, Fannie earned 3 As, 9 Bs, 18 Cs and 2 Ds. Freddie meanwhile received 5 As, 14 Bs, 10 Cs and 2 Ds. Aggregated Freddie scored a B+/A- compared to a B- for Fannie.

Q25 asked if the higher fees at the GSEs for second homes and high-balance loans slowed activity in that market sector. It has, by approximately 40% at the mean and median both. The range was from no effect to an 80% decline in activity in this sector. How valuable have HomeReady and HomePossible been to your firms, asked Q26. The mean and median rounded to 5, the range of scores was 1-9 for both banks and IMBs. The mode was 8.

It was a near standoff in Q27, which asked if the new agency loan limits, assumed to be over $700,000 when released in November, were viewed as too high. Sixteen executives said too high and 15 said not too high. There was little difference between IMB and bank responses.

Q28-30 asked for letter grades for FHFA, FHFA’s final capital and liquidity standards, and for the CFPB. The FHFA received 2 As, 11 Bs, 9 Cs, and 7 Ds for a composite score of C+. Its liquidity and capital standards received 1 A, 11 Bs, 13Cs, and 3 Ds, for a composite score of a C+. The CFPB received 1 A, 4 Bs, 17 Cs and 8 Ds, for a composite C- score. Received grades varied little between banks and IMBs.

Q31-33 concerned sales of servicing, the magnitude of improvement in MSR values, and the spread between the cash market and MBS. Three times as many lenders reported that servicing sales were continuing at a near-record pace following Q1’s record level. Overall, MSR prices have improved 25 bp since the slowdown in lending began, and the
MBS/cash market spread was estimated at 15 bp. The mean and mode for MSR price improvement were 33 and 25 bp respectively, whereas the mean and mode for the agency cash vs MBS spread was 22 and 25 respectively.

Q34-37 dealt with recession expectations, the mortgage rates anticipated at year end, whether current mortgage rates were the new normal, and how much each executive thought home prices would rise in 2022. Expect a recession in the first half of 2023, said 28 of the 33 executives. As for a best guess as to the prevailing mortgage rate at year end this year, the median was 7.25% with a mean of 7.05% and a mode of 7.5%. The range was from 5.6-8%. Concerning the question of whether today’s rates were the “new normal,” only 6 of 27 lenders thought so — that today’s rates were the new normal (meaning, as inflation recedes interest rates will too.) House prices are expected to rise only 4.5% this year vs. last. The range was from flat to up 12% for 2022.

Q38-41 covered whether more lenders were to quit wholesale lending, whether their firms were beginning to see more repurchase requests from the GSEs, whether today’s high interest rates affected the way their servicing departments handled borrower defaults, and whether gain-on-sale margins have dropped 100 bp or more since the year began. By a margin of 10:1, lenders expect fewer firms to operate wholesale operations; 21 of 33 executives said they are receiving more repurchase requests; only 3 of 29 executives indicated that today’s high rates changed the way borrower defaults were handled; and 3 times as many lenders said gain-on-sale margins had fallen at least 100 bp, 24 vs 8 noes.

Q42-44 asked about the effect of existing low rates on next year’s trade-up market, about margin pressure expectations, and if inflationary pressure would subside in the next 3-4 months. Yes to whether existing low rates will slow next year’s trade-up buying scored an 8 of 10. Concerning margin pressure in 2023, by all means expect it to continue said all 33 executives, in the only unanimous response in the survey. As for inflationary pressures, only 13 of 33 lenders expect the pressure of inflation to continue in the months immediately ahead.

Q45-47 involve expectations for the industry’s production revenue, production income and their own firm’s production income. The mean, median and modes for industry production revenue were all at a 60% decrease in a range of off 25-100%. Production income for the industry is expected to drop 77.5% this year from last, within a down 30-100% range of responses. And for their firm’s production income, a median and mean decline of 50 and 55% respectively are expected. The range was from a low of down 25% to a high of off 90%.

Q48-50 all asked the lenders about the favorability of the new Ginnie Mae risk-based capital standards, on a 1-10 scale, for FHA/VA lenders, Ginnie issuers, and MSR price/values. Both favorability to FHA/VA lending and Ginnie issuers scored a 5. MSR rates/prices received a 4. Not too surprisingly, banks gave the new standards a higher score than IMBs, but not significantly higher.

Q51-53 asked about whether it was a good time to buy or sell a mortgage company, if their firm was prepared to process assumptions of FHA and VA loans they (or their sub-servicers) were servicing. Twice as many lenders said it was a good time to buy or sell a mortgage company with a strong purchase business as said not. Meanwhile, nearly twice as many executives said that their firms were prepared to process assumptions of FHA/VA loans they serviced, as not. And only 5 of 33 executives expect a big jump in residential for-sale listings next year, suggesting a continued limited supply of inventory.

Q54-57 asked about United Wholesale Mortgage, Ellie Mae, MERS and Ice Technologies acquisition of Black Knight. Nearly twice as many executives think that UWM is headed for disaster ahead, 19 yeses vs. 11 noes. Ellie Mae’s Encompass received zero As, 14 Bs, 8 Cs and 1 D, while MERS received 5 As, 21 Bs, 3 Cs and 2 Ds. As for the acquisition of Black Knight, about 7 times as many executives did not favor the acquisition — 4 yeses to 27 noes — saying it would consolidate too much data in the hands of Ice Technology.

Q58-59 concerned e-closings and their firms’ IT decisions the past 5 years. Lenders reported that start-to-finish e-closings, including the Note, were negligible, with zero the median and mode. The mean was 6.03% with banks a pinch above that number and slightly below that number for IMBs. Concerning IT decisions, the mean and median were 6.5 of 10 within a 1-10 range.

Q60-61 dealt with the executives’ level of concern about running a successful business next year, and whether it was a better decision to hunker down now or make new investments in mortgage banking. Worry over running a successful business next year scored a 7 with a mean of 6.4 and a mode of 5. The range was from 2-10. Finally, 21 of 33 executives thought it better to hunker down for the time being than make large new investments in mortgage banking. The remainder think new investments, especially in technology, was the better route in the months and year ahead.

So there it is, what was learned from 33 senior industry executives about 61 issues and topics germane to the mortgage bankers.

Survey Details
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 more current issues and topics to surface, replacing 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 sample size. The panel includes banks (17) and IMBs (16), including firms of all sizes, various operating channels, scope of markets served and places of domicile. The research objective being the creation of a microcosm of the mortgage banking community, then employing it to sample the industry’s thinking. It begins with a count of MBA lender members and a recognition that the 10 largest mortgage lenders account for 48% of all production, and the 75 largest lenders account for 85% of total units of production.

Among the 33 firms surveyed were 2 thrifts, one credit union, 17 commercial banks, a realtor-owned firm, 3 homebuilder-owned companies, 5 publicly-owned firms, a private equity-owned firm, one mortgage brokerage, and several family-owned companies. (As broad a cross-section as found in HMDA.)

The surveys were conducted both face-to-face at the Nashville convention and 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 October survey included 13 CEOs or Presidents, 6 EVPs, 11 SVPs, and 3 VPs. Per HMDA data, 21 of the firms surveyed are among the 100 largest lenders in 2021.

Finally, my thanks to the 33 mortgage executives who participated in this 29th survey in the series.

Conclusions
Having the advantage of assembling the collective responses of 33 senior mortgage executives, several conclusions can be drawn from the data. First, mortgage lending is comatose for now, the victim of 7%+ 30 FRM advent. Indeed, in the May 2022 survey I had asked: Q64 At what fixed-rate interest rate does the purchase market collapse? And the answer was: 7%. In Nashville, repeatedly I was told that the market demand stopped at 7%.

Signs of market distress found in the survey are many: 1) large year-over-year declines in production revenue and income; 2) high levels of sales of servicing; 3) volatility in the bond market; 4) continued, relentless margin pressure; 5) higher than targeted inflation readings; 6) high house prices; 7) thin for-sale inventories of houses for sale; and 8) strong expectations for an upcoming economy-wide recession.

When they estimated the industry’s overcapacity probably at 20%, MBA’s economists recognized that the solution to a smaller pie is a smaller number of diners. Fewer lenders, vendors, researchers, etc. are needed. Last May, the survey panel projected there would be 17.5% fewer firms by year-end 2023. Time will tell.

Other conclusions from the survey: sharply reduced production volume this year; fewer employees; more purchase business (as a percentage), including FHA/VA originations; fewer non-agency jumbos; continued inadequate numbers of ARM buyers; an even larger contraction in refi volume than indicated 6 months ago; a reduction in the permanent WFH workforce and a modest increase in full-time office staff, with little change expected in either next year; more agency repurchase requests; a slower trade up market; and flat supply.

Finally, the only market positives today are twofold: the softening in house prices; and the thought that it remains a good time to buy or sell a mortgage company with strong purchase businesses. But get through it we will.

October 2022 MBA Annual Convention Survey

1. YTD, what was your firm’s total production volume in all channels? $14.1b mean/$6.0b median*
2. In how many production channels does your firm operate? 1.8 mean/2.0 median
3. How many people does your mortgage company currently employ? 1000 median
4. What percent of your firm’s production is purchase business this year? 80%
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? 15%
7. What percent of this year’s production is non-agency jumbo? 8.5%
8. What percent of your volume is non-QM or non-prime this year? 0%
9. What percent of your volume is ARM production this year? 7%
10. Scaled 1-10, how important have buydowns become in 2022? 4
11. Are there enough ARM investors in the market today? Y-5 / N-24
12. Will GSE ARM MBS executions be competitive with banks in 2023? Y-5 / N-26
13. By how much has income from refinancings contracted at your firm this year? 80%
14. Has your firm’s MI-insured lending increased this year over last? Y-19 / N-13
15. Scaled 1-10, how hot has the purchase market been this year? 6
16. What percent of your firm’s employees are currently in the office full time? 20%
17. Permanent WFH accounts for what percentage of your firm’s workforce? 25%
18. Do you expect these percentages to change much next year? Y-11 / N-22
19. Have sizeable (i.e. 10%+) layoffs occurred at your firm in the past 12 months? Y-21 / N-11
20. Are layoffs over at your firm or do you expect more in 2023? O-7 / M-24
21. Have layoffs enriched the recruiting environment for LOs? Y-14 / N-17
22. Scaled 1-10, how hard are the GSEs working for your firm’s business this year? 5
23. What letter grade would you give FNMA for its interaction with your firm in 2022? 3/9/18/2
24. What letter grade would you give FHLMC for its interaction with your firm in 2022? 5/14/10/2
25. How much have higher fees for 2nd homes & high balance loans slowed activity? 40%
26. Scaled 1-10, how valuable have HomeReady & HomePossible been to your firm this year? 5
27. At $700k+, are the new agency loan limits for 2023 too high? Y-16 / N-15
28. What letter grade would you give FHFA for its performance this year? 2/11/9/7
29. What letter grade would you give FHFA’s final capital and liquidity standards? 1/11/13/3
30. What letter grade do you give the CFPB for its performance this year? 1/4/17/8
31. Are sales of servicing continuing at a near record pace? Y-21 / N-7
32. In bps, how much have MSRs improved since the slowdown in lending began? 25bp
33. What’s the current agency spread between the cash market and MBS? 15bp
34. Do you expect a recession in the next 6 months? Y-28 / N-5
35. Best guess, where will the 30FRM be on 12/31/22? 7.25%
36. Are today’s high rates simply a return to more normal interest rate levels? Y-6 / N-27
37. How much do you expect house prices to increase this year? 4.5%
38. Do you expect more lenders to quit wholesale lending in the months ahead? Y-30 / N-3
39. Are you starting to see more agency repurchase requests? Y-21 / N-12
40. Do today’s high rates change the way your firm handles borrower defaults? Y-3 / N-26
41. Have gain-on-sale margins dropped 100bp or more since the year began? Y-24 / N-8
42. Scaled 1-10, how much will existing low rates slow trade-up buying in 2023? 8
43. Do you expect margin pressure to continue in 2023? Y-33 / N-0
44. Do you expect inflationary pressures to subside in the next several months? Y-13 / N-20
45. By how much do you expect the industry’s production revenue to decline this year? 60%
46. By how much do you expect the industry’s production income to decline this year? 77.5%
47. By how much do you expect your firm’s production income to be down this year? 50%
48. Scaled 1-10, how favorable are the GNMA RBC standards for FHA/VA lending? 5
49. Scaled 1-10, how favorable are the GNMA RBC standards for Ginnie Mae issuers? 5
50. Scaled 1-10, how favorable are the GNMA RBC standards for the MSR market? 4
51. Is it a good time to buy and sell companies with strong purchase businesses? Y-22 / N-11
52. Is your firm prepared to process assumptions of the FHA/VA loans you’re servicing? Y-18 / N-10
53. Do you anticipate a big jump in residential for-sale listings in 2023? Y-5 / N-28
54. Is United Wholesale (UWM) headed for disaster in the months ahead? Y-19 / N-11
55. What letter grade would you give to Ellie Mae and its Encompass software? 0/14/8/1
56. What letter grade would you give MERS? 5/21/3/2
57. Do you favor ICE Technology’s acquisition of Black Knight? Y-4 / N-27
58. What percent of your loans have been e-closed in 2022? 0%
59. Scaled 1-10, how good have your firm’s IT decisions been the past 5 years? 6.5
60. Scaled 1-10, how worried are you about running a successful business next year? 7
61. Is it better now to hunker down or make new investments in mortgage banking? HD-21 / MNI-12
    Notes: Q23, 24, 28-30, 55&56 = A/B/C/D
    *means, medians, modes and ranges are cited in the Report of Findings

(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 msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)