US Housing Rolling Over Wells Fargo Confirms, As Mortgage Applications Plunge

Tyler Durden's picture

Throughout the past 7 years, even as the stock market hit new all time highs, the biggest missing link of the overhyped US recovery (starting in August 2010 with Tim Geithner's infamous NYT Op-ed), was the failure of housing to participate. Sure, Chinese oligarchs were happy to launder their illicit funds in NYC triplexes and Wall Street Private Equity firms took advantage of zero-cost Fed money to buy distressed properties in bulk and convert them to rental units, but for the average American consumer there has simply been no recovery as the "Old Normal" housing dream is now forgotten and an entire generation is forced to rent the roof over their heads.

Whether this is due to lack of demand, or far stricter mortgage supply remains a topic debate, but one thing is undisputed: after a terrible 2014, mortgage applications in early 2015 saw a modest rebound. Alas, it has since proven to be merely the latest headfake in a long series of false starts.

The evidence: earlier today the largest U.S. mortgage lender Wells Fargo reported results that beat expectations by the smallest possible increment. What caught our attention, however, was the fuel that keeps Wells Fargo's engine humming: mortgage applications. Unfortunately for the housing bulls, there was no good news here because after rushing higher in early 2015 on the latest false hope of an economic recovery or due to fears rates are rising, Wells' mortgage applications and the associated pipeline have declined ever since.


As a reminder, without a strong pipeline of mortgages entering the Wells Fargo Net Interest Income engine, the future for the one bank that is most reliant on the recovery of the US housing market, is rather bleak.

But it wasn't just Wells Fargo's slowing mortgage application pipeline. Earlier today, the Mortgage Brokers Association reported that mortgage application activity plunged over 27% in one week following a comparable 25% surge the week prior sent them to an eight-month high. The drop was the steepest percentage drop since the week of Jan. 25, 2009 when it tumbled 38.8%.

The sharp drop, however, unlike the gradual decline in Wells mortgage applications was not due to fundamentals, but as a result of a rule change on loan disclosures which slowed the processing of loan requests.

The reason for the surge, and then plunge: a rule change from the federal Consumer Financial Protection Bureau, which entails replacement of two mortgage disclosure documents with two new forms. The rule is known as the TILA-RESPA Integrated Disclosures rule also known as TRID.

As Reuters notes, "application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity," MBA's chief economist Mike Fratantoni said in a statement.

Some more details on TILA-RESPA from MarketWatch:

The federal government requires that as of Oct. 3 loan disclosure documents must combine the information required in the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Under the new rule change, known as the “Know Before You Owe” rule, or the TILA-RESPA Integrated Disclosure (TRID) regulation, consumers must be given the new combined Loan Estimate (LE) with all the charges, fees and line items three days before the closing, rather than at the closing on the HUD-1 form, which itself will disappear.


Closings may take a week more than usual, which could hurt home buyers who are depending on financing to come through quickly to have a chance against all-cash buyers, said Benjamin Niernberg, executive vice president of business development with Proper Title LLC, a title insurance company in Northbrook, Ill. “It can push the closing six days out, but we’re talking about business days, so if it falls on a weekend, it could be even longer,” he said.The new rules have been in the works since November 2013.

Worse, the new rule sets up a bottleneck in the process: "Joe Parsons, a senior loan officer at mortgage lender PFS Funding in Dublin, Calif., is even more pessimistic, saying TRID will likely delay closings as much as two weeks initially, and the delays will continue for the rest of the year. “It’s going to take about three months before everybody gets comfortable with this,” he said.

So call it the New Year before banks normalize the pipeline, or just around the time a foot or more of snow "crushes" the US economy once again, and resets the housing cycle to square one.

It also means that far from rising rates - a gambit which was meant to spoof potential homebuyers into rushing out to get a mortgage ahead of rising mortgage rates, a gambit which has since failed - the Fed will have to come up with a way to lower interest rates even further just in time for the US to finally decouple with the Emerging Market debt crisis and the Quantitative Tightening courtesy of the collapse in commodity prices.

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Dr. Engali's picture

No worries. Uncle Warren bought himself a patsy in the White house. I'm sure Well Fargo will be just fine.

NoVa's picture

WFC is actually trying to reduce exposure to mortgages; hence their applications and originations will be down. 

1 - 2 years ago, they exited Joint Ventures; last year they exited Wholsale.  this year, they are exiting marketing agreements (deals with Realtors/Builders to accept loan referrals) >  all sources of volume that feed the machine. 

The exit from marketing agreements is big industry news - CFPB basically came in and said: you leave that business or Gov will sue you again. 



Nenad's picture
Nenad (not verified) NoVa Oct 14, 2015 10:22 AM
Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy!
JRobby's picture

That was last month's news

OrangeJews's picture
OrangeJews (not verified) JRobby Oct 14, 2015 11:07 AM

It's because the House Builders are financing people for lower than the Big Banks will.  Ryland for example is incredibly lower than Wells and you don't need much down.

847328_3527's picture
If You're Young, The Job Outlook Is Grim No Matter Where You Live


The World Bank has an unsettling message for young people around the globe: Whether you're male or female, live in Tunisia or the U.S., you will struggle to find a job.

Across regions and continents, people 15 to 29 years old are at least twice as likely as adults to be unemployed. The world will have to create 600 million jobs over the next 10 years, or 5 million a month, just to prevent the situation from getting worse ....


Sounds Bullish to me.

tarsubil's picture

Yeah, they have homes as low as 350K! What a bargain!

roadhazard's picture

I'm surprised you can find your way back here every day.

Blano's picture

Ok, I'm a Christian, so I can say this:

Enough with this shit already.  Worse than the $5,000 a week giving blowjobs trolls.

One Day Only's picture

Geez, another hyperbolic headline. Plunge? A WoW measurement that shows a large red line the week following a large green line? That's not a plunge, that's a return to trend.

viahj's picture

not to mention that winter holidays season quickly approaches.  purchase apps seasonally drop this time of the year.  also after years of artificially low rates, most homeowners with equity have already refinanced so refi apps will be down.  big nothingburger.

NESD's picture

At least the first chart had a y-axis that started at zero.....that is something seldom found at ZH. The usual fare is for some manipulated chart that shows a small percentage change as a dropping off a cliff event.

JustObserving's picture

Let's get NIRP going - you buy a house and make no payments and own the house.  Free houses are next after free money. Free cars are next.

Free fiat from the Fed is economic Nirvana.


847328_3527's picture

USA = The zero down, no doc nation = "Gimme 'cause I deserb it!"


My German friend was visting us an dhe was shcoked to learn you can buy a house with zero money down in America. In Germany he said you need at least 30% down. But then, he said they also don't have a housing bubble and subsequent collapse in Germany becuase only those can actually afford a house buy one.

Son of Loki's picture

Before long Barry will be offering Free Sex?!

Jena's picture

Maybe. But I'm really not interested in having sex with him.

mtndds's picture

When housing prices collapse is when I know that shit is starting to get real.  Until then, rally on!!

LawsofPhysics's picture

Good.  Maybe some more peasants can finally afford a home and TAKE OWNERSHIP.

Neighbors that actaully own the property always seem to be a bit better than those that do not.

KnuckleDragger-X's picture

The operative word is 'own' and people have forgotten that it's a long-term investment and not a profit center. I figure when it all shakes out we might be able to see real ownership again.......

vq1's picture

Id love to own. However the good jobs that pay well (tech/engineering) always locate me in city centers. Hmm waste money on rent or waste time on commute? Yay freedom.

A Lunatic's picture

Could have sworn I saw an article bragging about record highs a few weeks back.......

o r c k's picture

Record highs, record lows. Same thing.

Dr. Engali's picture

Record lows is the new highs.

A Lunatic's picture

My hopium levels must be running low.....

vq1's picture

my hopium levels are at negative interest rates.

my doom and gloom levels are at QE3

glenlloyd's picture

My neighbor works for Wells and was complaining about it the other day.

Talk about idiotic; lower interest rates to 'help' the housing market and then turn around and enact another regulatory hurdle that kills it off. Amazing...

NoVa's picture

the wild WOW swings really has nothing to do with TRID (the new disclosures).  The WOW swings are entirely rate driven.  two weeks ago, rates rallied and refis come flooding in, then the prior measurement week (big down week) reflects a rapid rise in rates to the .15 - 2.20 10 YRT yield.  Next week will be another huge UP week given that the 10YRT is looking to break through 2.00%.

2.04% had been serious resistance.  we'll likely see 1.96 next then 1.86.  IF 1.86 is breached, LOOK OUT BELOW for a historic all-time lows in the 10YRT. 


BTW - TRID Disclosures are actually Pro-Consumer.  The industry mouth pieces have been screaming to get TRID delayed (actually the TRID penalties delayed by Congress). 

Oblamo Admin has threatened to veto the House bill to delay TRID penalites against industry.




JRobby's picture

So mortgage origination is still a viable business model?

Rainman's picture

Blackrock, Cerebrus, Blackstone, Colony are competing to finance rental home purchases by smaller landlords.... then securitizing the loans into pools....nice twist on the old RMBS scheme. 



economicmorphine's picture

I sold my home to these asstards.  They are the whole market in the 3 BR, 2 BA, built since 1990 suburban market in my little Midwestern shithole city.  They are the whole market.  When they disappear, there are no other buyers.  What's funny is how many people are clueless.  They're buying because prices are going up and prices are going up because the VC asstards are driving them there, that is, until they disappear in 3-2-1-POP!

buzzsaw99's picture

joe and jane 6pack's favorite breakfast. cereal refis.

jakesdad's picture

what's a "mortgage"?  oh, I remember!  it's that thing we paid off in late 90s instead of buying into the .com bubble!

22winmag's picture

The National Association of Pimps and Whores and Realtors will love this.


Definitely time to buy!!!!!!!!!!

Sutton's picture

The property taxes are going to bring the whole thing down. 

Colonel Klink's picture

"said Benjamin Niernberg"

Funny how they're always getting the scoop from the closest cheesepope, especially in ILL-a-noise.  98% of the time interviewing the 2-3%.

economicmorphine's picture

Just bought a new house.  I can say with certainty that the top of the market is now in.

inosent's picture

as long as you can rent it out and b/e, just keep it until the mtg is paid. some day that might be an income producing asset for you.

swmnguy's picture

I ran into an old friend who is a realtor, in the last week of September.  She said she was going nuts trying to get closings done before 10/1/15, when new paperwork requirements were to go into effect.  She described the new paperwork and rules as still more attempts to protect stupid homebuyers from themselves.  

She said it will stop, or seriously hinder, some of the wheeling and dealing that typically happens at closings.  I, for instance, would always prefer to pay a little less if the seller hasn't completed certain repairs, and get the repairs done myself.  I can do many such repairs myself, and if I can't, I'd rather be the one hiring it out, as I care that it gets done properly, rather than the seller who just wants it to be cheap and get past an inspection.

Of course, at least half the homeowners I know shouldn't own a house as they don't know how and don't bother to educate themselves.  Just as at least half the auto owners I know shouldn't own a car, much less drive one, as they're terrible at it, unsafe, and can't be bothered to pay attention to the task.

So I guess the morons set the rules, as usual.