Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles

Tyler Durden's picture

The topic of the false recovery in the US housing market has seldom been far from these pages but it seems both the mainstream media and the actual businesses on the ground are seeing that extrapolating dead-cat-bounces and easy-money bubbles (once again) ends in tears. As WSJ reports, mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery. The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course... and the marginal potential refinancer has hit their limit.


As The Wall Street Journal reports, lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.

The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.

The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing.



The hope is fading fast...

The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.




Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery. Applications for purchase mortgages last week ran nearly 18% below the level of a year ago, even as the average loan amount on new applications hit a record of $280,500, according to the Mortgage Bankers Association.


The numbers raise questions over whether wage and job growth is strong enough for American consumers to shift the housing rebound that began two years ago into second gear.


"Housing has become less of a drag, but I don't think it's going to be that engine," said Stan Humphries, chief economist at real-estate data company Zillow Inc.

No engine indeed...

While mortgage rates are still low by historical standards, they're less useful to traditional buyers because home prices have risen swiftly, offsetting any benefit that low rates provide to reduce housing costs. As a result, "housing is becoming a less effective transmission belt for the Fed" to boost the economy, Mr. Humphries said.




"The real question for 2014 and later is how low the refinance share is going to go," said Guy Cecala, publisher of Inside Mortgage Finance. When mortgage rates jumped nearly two percentage points in 1994, refinancing fell to 11% that June, from 63% the prior October.




"Margins and profitability will be tremendously difficult this year for mortgage companies," said Anthony Hsieh, chief executive of, a closely-held mortgage bank based in Foothill Ranch, Calif.

Now, the industry is poised for a shakeout that could flush out lenders that can't survive on smaller margins. "This change is much more structural and will be longer lasting," said David Stevens, chief executive of the Mortgage Bankers Association. "It's a classic supply-and-demand scenario. We have an excess supply of lenders and a lack of demand."

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Vampyroteuthis infernalis's picture

Anyone who could refinance did. Everyone else was priced out of the market. Are you proud of yourself Fed?

Jack Burton's picture

Indeed! I jumped at the chance a couple years ago to refinance from 4.1% 15 year fixed, to a 3.0% 15 year fixed. Everyone else qualified to get a deal like this also did it. The demand for refinance should be all played out.

Bunga Bunga's picture

The effect of refinancing on money supply is close to zero anyway. You need new debtors who buy the shit.

Cursive's picture

@Jack Burton

What's the infatuation with 15 year products?  You could always prepay a 30 year.  And what points and closing costs did you pay?  I did a no-cost refi (they actually paid me a few bucks) to swap a 5 year ARM for another 3.0% ARM.  Oh, and before anyone thinks I'm screwed when rates go up, think again - there will not be a Fed if the 10-yr. ever hits 5% again. Then again, the smartest people may be the deadbeats.

Groundhog Day's picture

the smartest people are the deadbeats.  They borrowed with nothing or near nothing down (i put 40% down), they stopped paying(i paid my mortgage off by living way within my means in 12 years by buying used cars, not buying a smart phone until a year ago, just getting my first tablet, etc), they live payment free and property tax free, i still have to pay for 10k in NJ property taxes, 1000 in house insurance etc etc.

yea i'm the loser

Seer's picture

Well, no one said life was fair.

If it's any consolation I'd do business with you.  Years ago I was blasting folks here on ZH who were boasting of going to stick it to the banks by taking out loans and then not paying them- these folks I would NOT! do business with.  If one enters into a contract then they should endeavor to live up to their end of the deal.

You have a stake in your home.  Yeah, it costs you.  But... most others are w/o any real equity in anything; further, where else would one have "invested?"  Most "failed investments" don't continue to provide some sort of value as does a home: at least you can live there (squatters can claim the same, but they'll be looking over their shoulders all the time).

I've never bought a new car or truck or tractor.  I don't go on vacations.  AND, I'm still WAY above the overwhelming majority of humans on the planet.

I opted to take advantage of the low interest rates rather than liquidate my assets.  I did this not with the intent of skipping out on mortgage payments, but to hedge in case the mortgage broker should one day not be able to make the rounds- if there's no one to accept the payment then I get to hang on to my cash: those who have "paid off" don't have this option.

Stay away from harboring a victim mentality, as it keeps one from seeing where one can leverage an (otherwise hidden) advantage.  None of us knows exactly how it'll all go down, but for sure it will go DOWN...

nightshiftsucks's picture

Anyone who could refinance did,exactly. The new stimulus will be that everyone who hasn't been able to refinance will now be able to even if you don't qualify.

CrashisOptimistic's picture

My house is paid off.  Has been for years.

Lemme have a retroactive refinance where they refund money.

wallstreetaposteriori's picture

Thats called a reverse mortgage... the fonze is all about them.

Pee Wee's picture

Hell no, you get to eat inflation caused by easy mortgages and fraud money (credit).

Next you get taxed for being responsible.

Next you get to pay to maintain.

Want money out, short the piss out of all synthetic rackets - RE being the largest.

Seer's picture

Total collapse OR debt jubilee.  Those are the only means by which there could be a resolution.  All this other stuff is just beating around the edges.

10mm's picture

Good. Fuckin racket. 

mmanvil74's picture

Hard to imagine an excess supply of lenders when FED money flows for free to said lenders.

Seer's picture

Yes, but one has to imagine that they know that it'll end at some point and that when it does they're going to be closing their doors.  Most probably aren't tipped as to when that might happen.

Jack Burton's picture

Housing demand should be built on income and job security. As neither exists except in the top 1%, one wonders where the demand will come from. Incomes are flat to down for most. Youth who should be forming families and buying houses, are instead burdened with huge student debt levels, that takes the place of money they would have had to service a mortgage. Jobs are part time or low wage, youth with debt to service and low income prospects are hardly going to be forming families and house hunting in the 250K -500K range. And we have interest rates creeping back from record lows. Yet, we are supposed to see a housing recovery based on this?  In the past, people in their late 20's early 30's were having kids, getting those first good paying full time jobs and looking for the starter home. That model is now a joke!

i_call_you_my_base's picture

Correct. I think the other thing is that there are a lot of people who have money but won't buy at prices that are similar to 2006 for fear of getting hosed. I am in this class. I won't buy until prices come down by at least 20%. It's obvious to anyone that's paying attention that current prices aren't sustainable (for the reasons you cite above).

nuclearsquid's picture

The prices are fine, however, if you are a wealthy belgian duke, or corrupt chinese businessman.  Also, if you are blackstone, and you can pay cash, then leverage the shit out of the portfolio, and pass it through to investors who are hunting a miniscule yield.


Jlasoon's picture

You're correct. Both my wife and I work in a hospital. We both could theoretically go out and buy a house but refuse to give in at these prices. Just let the system starve. Don't rush, and eventually you'll get your price. 


CrashisOptimistic's picture

Fuck the house.

Get some farmland.  Maybe there will just happen to be a house on it.

NihilistZero's picture

Or buy a house and when the SHTF and as your neighbors on all sides scatter, squat on their properties.

Once you get ownership knock 'em down and you've got farmland :-)

VegasBob's picture

A while back I noticed that all the home flipping shows were back on TV, so I figured I'd take a look and see how bad Housing Bubble 2.0 was.

In one resort city, one-bedroom crapshack condos that were going for 50K to 55K in 2012 are now running 90K to 130K.

In another resort town, one-bedroom crapshack condos that were going for 60K to 75K in 2012 are now running 119K to 150K.

Methinks prices for crapshacks are going to have to come down a lot more than 20% before I plunk down a pile of cash for a second home.  I got hosed once in 2008 to the tune of about 40K - it ain't happening a second time.

I wonder what dipshits like Mr. Bernanke and Mr. Yellen are smoking?

Here's a lesson in Common Sense 101: If I wouldn't plunk down 60K for a crapshack in 2012, why would I plunk down double the amount for the same crapshack in 2014?

Do the idiots who set policy in this godforsaken country really believe that I'm that stupid?

NOTaREALmerican's picture

Re:  really believe that I'm that stupid?

Not you personally, Bob.  But I personally know someone who just bought a fixer-upper-in Sacramento, because:  it can't get any worse so now is a good time.

You are forgetting that most humans are pathological optimists.   Optimism creates hopium particals in the brain.   When an optimist gets together with another optimist the hopium-particals in each person's brain collide, causing the particles to split which give off new bullshit + another hopium particle: this is called bullshit fision.    Without bullshit fision, there's be no romance, politics, religion, or home flippers.   Society wouldn't exist. 

NihilistZero's picture

Romance, dear sir, IS NOT BULLSHIT.

My lovely lady and I assure you ;-)

VegasBob's picture

I understand irrational optimism.

I watched helplessly earlier this year as friends bought one of those "renovated" fixer-uppers in Sacramento from a flipper. The flipper paid 125K May 2013, the friend paid 191K March 2014.

Withn 48 hours of moving in they found they had to replace the sewer line to the street. $4.5K.  And there was probably another $2K of plumbing repairs on top of that.  Then, they find that the new roof was installed incorrectly. Another $15K, but maybe that's covered under warranty.

I guess I've just become too cynical to believe any of the bullshit anymore.

Pee Wee's picture

They are smoking you.  They are lighting up any semblance of wealth you or the next two pathetic generations of your family will ever incur justly because you are that stupid.. 


Pee Wee's picture

Be smart and rent.  You dont need fraud with a roof.

Seer's picture

Careful about trying to time the bottom.  There are some rather sophisticated buyers out there that are likely a bit better at timing, and, have deeper pockets.

My timing has been pretty good, selling just prior to the bubble burst and then buying near the bottom of the last bottom (and with low interest rates).  Sometimes one has to say "good enough" and get getting on with life...  I'm three years into my farm project and I'm not getting any younger...

Shizzmoney's picture


"We have an excess supply of lenders and a lack of demand."

That's because you guys took all of our money.

I proudly will never sign a piece of paper for a house.  Fuck that shit. 

sleigher's picture

I did once.  I don't think I ever will again though.  If I ever buy anything like that again it will be land and only land for which I can get an original land patent.  Only land that I can truly own.  There are people who have done this and been successful.  No property tax and not listed with the county.

Carpenter1's picture

And the market can never see 5% again, painted into a corner of their own making. Way to go fools.

Seasmoke's picture

Surely there are million more homes that they don't hold the note on, they can fraudently foreclose on

benb's picture

I'm thinking about a 2nd home. $1 for a fixer-upper in Detroit. Private financing...

NOTaREALmerican's picture

What about down-payment loans?   Those worked pretty well, for awhile, last time.   What's this country coming too when the finest sociopaths in the world can't figure-out how to screw the dumbasses. 

Seer's picture

It's all based on a ponzi, the growth ponzi.  Of course, then, the schemes just get more and more fucked up- they have to!

Not in defense of the financial entities, but imagine that you're a smaller one that is, let's pretend, "ethical."  They see all around them this new "vehicles" being used to generate new loans (and it's new loans that IS your business).  If you don't offer these same things (and all the public is scrambling toward them) your business basically dries up and collapses.

It's like a herd being chased by a lion and they're all seeking safety in the herd as they run toward the cliff.

buzzsaw99's picture

not just lenders, realtors are going to be looking for a real job too

Yen Cross's picture

 After the Chinese sandstorms stop, I see some real opportunity...  

   Long CAT Asian division.

syntaxterror's picture

Everyone relax. Blowjob Barry knows it's an election year. Another Backdoor Blowjob Barry Bailout is on the way.

Yen Cross's picture

     HARP loans and unicorn buyers for everyone...

papaswamp's picture

The uber awesome part are all the home equity loans that begin to reset this year ( and the next 2yrs).

NOZZLE's picture

285 Bllions per year, so WTF was ButtSnackee buying with the rest of the 890 Billions he was printing? 

orangegeek's picture

A monthly housing index going back to before 2006.


There never has been anything close to a housing recovery.  And as deflation picks up momentum, prices will fall much further.

CrashisOptimistic's picture

I'll call your website pimping chart and raise you the ultimate housing recovery chart, that goes back to the 1960s.

Yen Cross's picture

 Don't make me call you on that one crash? 

CrashisOptimistic's picture

You got an uglier chart, YC?  Let's see it!

Every time I post that thing I realize these are 1960s TROUGH levels, not even 1960s peaks.

There are 70 million more people walking around and we are selling houses at 1960s levels.  What monumental bullshit the real estate industry is.

Yen Cross's picture

 Crash I love ya, but you're mix matching analytics from (2)possibly 3 different generations.

  When you surmise 60's levels are you taking into account servicing costs? Are you taking into account education and travel costs?

   Are you excluding "cost of living" through inflation CrashisOptimistic?  I upvoted you.

CrashisOptimistic's picture

YC, it's about population.

The 1960s were one income families buying houses.  Now we have 60 more million people combining themselves into two and three (grandpa's Soc Sec) income families and we can't sell anymore houses than we did in the 1960s.

Those travel and education costs didn't get in the way in the 1980s, or 1990s, or 2000s, when the level was higher with fewer people.

It's all monumental bullshit.

Seer's picture

"And as deflation picks up momentum, prices will fall much further."

And as they do interest rates will rise.  If one has cash then there will be opportunity: but you'll have to compete with the Chinese and others.  Expect "prime," however, to still be prime and therefore still carry a prime price.  I'd figured that I probably couldn't wait around long enough for top-grade Ag land to appear so I got lower-grade Ag land (and rather than spending money I'm spending time- if it ain't one thing it's another, very rarely can you expect to hit the trifecta).