Thanks For The $3.5 Trillion of QE! Q1 Mortgage Volumes Drop To 17-Year Low

From National Mortgage News 

Mortgage lending is contracting to levels not seen since 1997 as rising interest rates and home prices drive away borrowers.

Wells Fargo & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that's part of an industrywide drop off. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington.

Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40% has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association.

"Banks large and small are going to have to adapt to a new reality because mortgage origination volumes going forward aren't going to support the big businesses they've had in place for the last few years," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. "They're going to have smaller, leaner operations, and we're seeing them make that shift."

At Wells Fargo, home-loan originations exceeded $100 billion for seven straight quarters, ending in June 2013. The figure plunged to $36 billion in the three months through March, the San Francisco-based bank said April 11.

Wells Fargo's results show the shift in the housing market away from refinancings as interest rates climb. Just 34% of its originations went to customers refinancing loans, compared with 69% in the same period of 2013.

Timothy Sloan, Wells Fargo's chief financial officer, said a combination of forces, including tougher standards following the housing crash, account for the falloff in lending.

"It's too early to call it a secular shift," Sloan said in an interview. "This recovery has just been more complicated because of the impact of rates being low, and now they are backing up a little bit. We've had a lot of regulatory changes, we've had a change in underwriting standards that the market is getting used to."

The average interest rate for a 30-year fixed mortgage was 4.34% last week, up from 3.54% a year ago, according to a statement from Freddie Mac.

Lenders also are tightening credit standards, requiring higher FICO scores. More than 40% of borrowers in 2013 had scores above 760, compared with about 25% in 2001, according to a Feb. 20 report by Goldman Sachs Group Inc. analysts Hui Shan and Eli Hackel.

JPMorgan originated $17 billion of home loans in the first quarter of 2014, lower than at any time during the housing crash. The New York-based bank made $52.7 billion of mortgages a year earlier. Marianne Lake, JPMorgan's CFO, cited severe winter weather as among the reasons for the first-quarter drop.

Remainder of Article Here.

.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access