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Mortgage rates tick down for first time this month
Mortgage rates inched down this week, and they are likely to remain stable throughout the rest of the year.After three consecutive weeks of upticks, the 30-year fixed mortgage rate dropped 0.3 basis points to 6.23% from last week when it averaged 6.26%. The 30-year rate averaged 6.81% this week a year ago.The 15-year fixed mortgage rate also fell 0.3 basis points to 5.51% from 5.54% last week. It averaged 6.10% this week a year ago."Heading into the Thanksgiving holiday, mortgage rates decreased," said Sam Khater,Freddie Mac's chief economist, in a press release Wednesday. "With pending home sales at the highest level since last November, homebuyer activity continues to show resilience as we near the end of the year."The Federal Reserve cut the federal funds rate by 25 basis at the end of October, yet the three full weeks that followed all saw mortgage rates rise, causing pending home sales and overall activity to stall shortly after. Much of this can be attributed to Chair Jerome Powell's comments at the Federal Open Market Committee Meeting, in which he tampered expectations for a December cut.Pending home sales decreased 0.3% during the four weeks ending Nov. 9, the first drop in four months, according to a report from Redfin."House hunters are sensitive to rates and prices; many are waiting for one or both to drop before buying," said W.J. Eulberg, a Redfin Premier agent in Milwaukee, in a press release earlier this month.But overall activity in the housing market saw a slight bump recently, as mortgage applications increased 0.2% last week from the week prior, despite a 6% dip in refinancing activity, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey."Despite these slightly higher rates, purchase applications increased over the week and remained at a stronger pace than a year ago, with increases across conventional and government purchase applications," MBA Vice President and Deputy Chief Economist Joel Kan said in a press release Wednesday.With uncertainty surrounding a rate cut next month and delayed data following the government shutdown, mortgage rates are expected to remain relatively stable until next year.
IMBs gain on sale is up, profitability isn't
While gain on sale margins for mortgage lenders were at least stable, if not improved, in the third quarter compared to prior periods, that did not necessarily translate to improved profitability, separate reports from Morningstar DBRS and Boston Consulting Group revealed.The Morningstar report looked only at independent mortgage bankers, and the group it pulled gain on sale data included Onity, Rocket, Loandepot, United Wholesale Mortgage, Rithm and both publicly traded Pennymac companies.BCG includes depositories which provided GOS information, including Citizens Financial, Fifth Third and PNC; its non-bank group includes the soon-to-be acquired Guild, but not Onity or Pennymac Financial Services, although those companies do appear in other portions of the study.What drove IMBs third quarter results"Companies optimized their performance by controlling pricing in the wholesale channel, capitalizing on the servicing portfolio through enhanced recapture capabilities, and optimizing channel mix by shifting volume to more profitable channels such as the direct-to-consumer channel," Morningstar DBRS analysts Shaima Ahmadi and David Laterza wrote.Both reports noted the tailwinds from the surge in refinancings for volume in September, which continued into October.Going forward, BCG is expecting high refinance demand as sensitivity to rate changes coupled with a growing portion of outstanding loans with mortgage rates which are over 6% are pushing lenders to focus on recapture opportunities.Rocket's GOS was flat compared to the second quarter and only 2 basis points higher than one year ago. Its earnings benefitted from the integration of Redfin during the quarter, as the latter's real estate leads flowed into Rocket's platform, Morningstar DBRS said.Rithm reported lower GOS versus both comparable quarters, which the Morningstar analysts noted came from "higher Ginnie Mae streamlined refinance volumes, which are cheaper to produce, but have thinner margins."The only depository in the BCG grouping with lower GOS on a quarter-to-quarter basis was Citizens, down 24 basis points. Among the companies it tracks, median GOS margins increased by 9 basis points versus the second quarter but declined on an annual basis by 14 basis points.Non-bank mortgage companies tracked by Morningstar DBRS reported combined net income of $367 million for the third quarter, down from $807 million three months prior but up from $191 million of net losses for the third quarter of 2024.Why improved margins did not correlate with better results"Stabilization of mortgage servicing rights, fair values with effective hedging and higher servicing fee income were common drivers of improving profitability for certain participants," the analysts said. "However, higher gain on sale margin as reported by some of the peers did not have a corresponding effect on overall firm profitability as those gains were offset by an increase in operating costs, and the nonrecurrence of derivative gains, and one-time benefits reported in the same quarter a year ago."When it came to operating expenses across the peer group, these rose by an average of 30% over the third quarter of 2024, with higher variable costs related to higher production volumes being a common driver. For Rocket in particular, expenses were also driven by transaction-related costs from the Redfin and Mr. Cooper deals.In its client conversations, BCG found they are working towards creating lasting low-cost structures and remarkable growth, primarily via margin expansion and increased market share, the report from Micah Jindal said."Many are prioritizing investments in artificial intelligence, end-to-end digital customer journeys and home ecosystems to achieve these goals," BCG said. "These observations highlight a common urgency: continually adapting to fuel sustainable growth and lead in a persistently changing mortgage sector industry."What lenders are doing to grow their businessAs part of efforts to grow market share, lenders are adding to their product menu "to meet changing customer needs," such as adding or expanding their home equity line of credit and non-qualified mortgage offerings, BCG pointed out.Among the forward looking guidance the BCG clients provided was a "strong belief across peers that continued AI investment will reduce cost to originate and service while enabling personalization at scale to help grow revenues."Peers are continuing to shape their mortgage platforms as some look to diversify their business lines (Rithm), invest in servicing capabilities (Rocket, UWM), pursue asset lite strategies (Pennymac, Onity) and focus on customer relationships (banks)," BCG said.Besides the six IMBs and three banks previously mentioned, the other depositories in the BCG report are Wells Fargo, J.P. Morgan Chase, U.S. Bank, Bank of America, Truist, Huntington Bank and Citi.
Does the Fed have an ethics problem?
Key Insight: Even though ethics violations among Fed officials are uncommon, high-profile cases like that of former Fed Gov. Adriana Kugler highlights persistent questions about oversight effectiveness.Expert Quote: "When you're in a position that's as influential as working at the Federal Reserve, you're governed by the law of Caesar's wife — be above suspicion." — Alex Pollock, senior fellow at the Mises Institute.What's at stake: The Federal Reserve unveiled new reporting requirements in 2022 for members of the FOMC. The recent Kugler controversy has raised questions about whether the rules are actually working.The Federal Reserve has been rocked in recent years by a number of high-profile trading scandals, leaving some to question whether the central bank has an endemic ethics problem that it is struggling to contain internally.Stakeholders interviewed differ on whether there are actual oversight lapses or whether attention to such cases is simply heightened when Fed officials are involved. But what is clear is that these incidents can undermine public confidence in the central bank."When you're in a position that's as influential as working at the Federal Reserve, you're governed by the law of Caesar's wife — be above suspicion," said Alex Pollock, a senior fellow at the Mises Institute.The most recent scandal to make headlines was the revelation that former Fed Gov. Adriana Kugler violated the central bank's ethics rules and was subject to an internal probe before her abrupt departure in August. Financial disclosures show previously undisclosed trades in multiple individual stocks in 2024, some of which occurred during the Fed's blackout period, a violation of the agency's ethics rules.Other Fed officials embroiled in financial-related scandals in recent years include Atlanta Fed President Raphael Bostic, Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan. Both Rosengren and Kaplan were cleared of legal wrongdoing by the central bank's internal watchdog, but they were criticized for eroding the public's trust. An investigation into Bostic found no violation of federal insider trading laws, but did reveal that he failed to disclose his holdings in a timely manner.Mayra Rodriquez Valladares, a financial risk consultant, said that despite these instances, ethical malfeasance is rare at the Fed and not systemic."We have to remember these are three or four people out of how many thousands who work for the Fed system," she said. "This is not part of the culture in the Federal Reserve; this is not pervasive behavior that is going on."Valladares added that there are many more examples of members of Congress engaging in similar activity, noting that rules should be written to "prohibit them from committing flagrant insider trading."Following the Rosengren and Kaplan scandals in 2020, the central bank implemented more stringent reporting requirements that limit certain investments."These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve," said Fed Chair Jerome Powell in 2021. But stakeholders have questioned whether these measures have had any meaningful impact. Aaron Klein, a senior fellow at the Brookings Institution, called the Fed's ethics system "rotten to the core," saying the central bank has failed to fix underlying issues despite the new requirements."If the Fed regulates banks the way it regulates senior officials for ethics, then God help us all," Klein said.Klein added that the Fed's new ethics standards require senior officials to disclose their financial information monthly, and questioned how Kugler's missing or incomplete disclosures could have slipped through."So was Kugler not submitting the information, or was the information not checked?" he said. "The Fed has never answered either question."The Federal Reserve requires members of the Federal Open Market Committee to give 45 days' notice before buying or selling any securities. If a purchase occurs, committee members must disclose it within 30 days.The agency's inspector general launched an investigation into Kugler earlier this year that is ongoing.Regardless of whether these issues are pervasive, market watchers agree that instances of financial impropriety harm the Fed's credibility."There's a high standard that some may think is not fairly placed on Fed officials, but overall it's important because these individuals are making decisions that impact monetary policy," said Pollock.Valladares said there should be more oversight and stricter rules for anyone who works at a bank regulatory agency, including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, to prohibit trading in bank-related stocks or bonds. But whatever rules are in place, it is equally important that those rules are effectively implemented and enforced, she said."The problem is you can have all the rules you want, but the question is how do said rules really get enforced," Valladares said.
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