Prospectus. Industry Outlook, 2013 Mortgage & Home Equity Loans

Transcription

1 Prospectus Industry Outlook, 2013 Mortgage & Home Equity Loans The Impact: QE3, HARP2, & National Politics Measuring The 2012 Refi Boom Home Equity Loan Originations: Stabilizing A Radically Different Future By 2015: The Coming Crash In Mortgage Production A New Golden Age For Home Equity Lending SMR s 2013 HE & Mortgage Forecasts Top Player Rankings, First Half 2012 Mortgage Production Home Equity Receivables Foreclosure & Net Chargeoff Data Summary of the Study Page 2 Highlights Pages 3-4 Good Year, Another Ahead The Coming Crash In Mortgage Originations Home Equity Loans: A Bright Future Change Gone Wild Outline of Contents Pages 5-7 About The Home Owner Data Page 8 ORDER FORM INSERTED SMR Research Corporation 300 Valentine St. Hackettstown, NJ Phone Fax

2 SUMMARY OF THE STUDY What we see now is not what we will see by At the moment, a major refinancing boom is pushing 2012 loan production to the highest level since HARP 2 is working. The 2012 mortgage production estimate made in August by the Mortgage Bankers Association is too low by as much as $500 billion, maybe more. Home equity debt continues to shrink, as the refis pay off many existing HE loans. Unhappily, those being paid off are some of the best credits. But this is today s scenario, not tomorrow s. Long-term interest rates will rise again if not in 2013, then in 2014 or When it happens, mortgage production will drop hard, and more importantly will stay muted for a very long time. Modest future mortgage production, probably beyond 2020, now appears to be statistically inevitable. But at the same time, starting in about 2015, we also see a new golden age emerging for the home equity product. For a while, home equity loans looked headed for oblivion. Instead, we see a future surge. More than any other study we have done, this one, more than 145 pages, looks far ahead with the numbers and analysis lenders need. We cover lender-by-lender results (measured many ways) through the first half of And we project loan volumes for both mortgage and home equity loans in That s the warm-up. Special sections look at the more distant future the future that will come when mortgage rates rise again. When that happens, today s landscape will be reversed. One section covers the coming crash in mortgage loan production. Another looks at why home equity lending will not only revive, but will zoom ahead. Still another special section reports newly released metro area results of the 2010 Census: basic housing statistics, home ownership rates, and the most likely hot spots for reverse mortgages and first-time home buyers. In the past, our annual September Outlook study has reported current results for the home loan industry, with an additional look one year forward. We go a lot further this time, with a long-term view based on statistics, not just opinions. This Prospectus has the details. An Order Form is enclosed or available on our web site. Thanks. Page 2

3 HIGHLIGHTS 2012: A Good Year, And Another Ahead The Federal Reserve s new round of quantitative easing ensures that the refinancing boom of 2012 will continue through the end of the year. We are now estimating total 2012 mortgage production about $500 billion higher than the August estimate of the Mortgage Bankers Association. We ll see who s right. SMR s 2011 loan production estimate, made one year ago, came within 3% of the hard-counted actual amount. Few clients will be surprised by a bullish full-year 2012 estimate for mortgages. More may be surprised to learn that home equity loans, falling in production volume since the credit crisis began, now have stabilized. Equity in housing fell hard from 2007 through But now, equity is increasing again, and home equity loan production has ceased its decline. We do not reveal in this brochure our projections for 2013, but we can tell you we are looking for a strong first half in mortgages, some change in the second half, and a generally upward year in home equity. Section IV of the study has the details and the numbers. The Coming Crash In Mortgage Originations Sorry to rain on the current parade, where mortgage production has ballooned while foreclosures have declined. But someone needs to take a longer look down the road, so we did. Mortgage interest rates are not only at historic lows, but also have been that way since Utilizing our property database, we find that more than 70% of borrowers now have loans below 6%, or else have short-term mortgages, or else have remaining mortgage balances below $100,000. By the end of 2013, nearly everyone will be in this boat, no longer needing a refinance when interest rates go back up. Even the under-water borrowers are now using HARP 2 in droves (see counts in Section II). A special 26-page section of this year s study shows the data and reaches two inescapable conclusions: 1) When rates rise, total mortgage production will fall hard and immediately, and 2) The ensuing period of low volume will last for a much longer time than most people might expect. See the numbers and the history of what happened after prior refi booms ended. This is going to be worse not in 2013, perhaps, but possibly in 2014 and highly likely before the end of Page 3

4 HIGHLIGHTS (continued) A New Golden Age For Home Equity Loans Following this year s study theme taking a longer look ahead we also see radical change coming in the home equity loan business. This time, the change will be very bright indeed. Home equity loans have performed so poorly since 2007 that many expected them to go the way of the Brontosaurs. They won t. Home equity loan demand has tracked historically with the amount of equity in housing. Now, home values are rising again. See Section II of the study. Owner equity is building even faster due to the consumer s shift toward short-term mortgages. A table in this study counts them up. At the same time, the millions of new low-rate mortgages produced over the last few years are making larger-than-normal principal repayments each month. Already, the annual decline in home equity loan production has ended. When mortgage interest rates rise and refis shut down, the home equity loan will become the product of choice, and credit quality should be great. We discuss this theme throughout the study, and especially in Section II. More New Events: Change Gone Wild Seldom has so much changed for home lenders in so short a time. Thrift institutions, for one thing, have suddenly turned into banks. We introduce them in Section III. Some have assets over $100 billion. Harp 2 is showing explosive growth especially in June, when Fannie and Freddie began accepting short-term mortgage HARP 2 applications. We have the year-to-date HARP 2 numbers. We also have a presidential election. Will it matter? See Section II. And we have QE3 which certainly does matter. We analyze the implications. We still have a credit crisis. But the credit quality section finds major new improvement in the numbers, with hard counts of loans in foreclosure based on a sampling of some 70% of all existing loans. Looking at loan competitors, change is everywhere. Wells Fargo apparently feeling not big enough has pushed further ahead. So have the credit unions, up a composite 66% in loan production in the first half of 2012 from one year earlier. Wholesale volume is shifting to entirely new players. Page 4

5 Outline Of Contents I. Introduction A. A Time Of Change: Prelude To A Different Future 1. 8 Major Home Loan Events In 2012 B. Down The Road: A Radical Reversal 1. Why All Will Change By 2015 C. Summary Status Of The Home Loan Business: Mortgages 1. HARP 2 2. Credit: Improvement Continues 3. Table: Bank Mortgage Production, Servicing, & Credit Quality Statistics As Of June, Table: Credit Union Mortgage Production, Servicing, & Credit Quality Statistics As Of June, 2012 D. Summary Status Of The Home Loan Business: Home Equity Loans 1. Refi Impact On Customer Quality 2. Originations Firming Up 3. Home Equity Loan Credit Quality 4. Table: Bank Home Equity Loans Outstanding, Heloc/Closed-End Breakouts, Delinquency & Net Chargeoff Rates As Of June, Table: Credit Union Home Equity Loans Outstanding, Heloc/Closed- End Breakouts, Delinquency & Net Chargeoff Rates As Of June, 2012 II. Key Issues: Home Values, HARP 2, Politics, QE 3, & The Future Of Home Equity Loans A. Key Issues Of The Hour B. Home Values Rise A Bit Further; Projection, With Caveats C. HARP Is Booming 1. Big Spike In June 2. The Freddie/Fannie Data 3. Chart: # Of Harp 2 Loans By Month, / Chart: Harp As % Of Total GSE Refis, By Month, /2012 D. The November Elections: 1. Potential Impact On Housing Looks Modest 2. Dems Alleged Class Warfare: But The Rich Have Done Well 3. What If Republicans Sweep Everything? 4. No New Housing Ideas E. The Fed s QE3 Announcement: Implications For Home Lenders 1. Ultimate Impact For Lenders 2. The Five-Year Refi Cycle Is Done Date, But Higher Mortgage Rates Could Start Much Sooner F. The Home Equity Product: How Today s Harsh Environment May Yield To A New Golden Age 1. Growing Equity In Homes For Multiple Reasons 2. Scenarios From Low-Rate Mortgages & Short-Term Loans 3. Limited Future Refi Competition III. The End Of The Thrifts A. The End Of The Thrifts In 2012 B. An Industry Obituary: The History & Demise Of Thrift Institutions Page 5

6 Outline Of Contents (continued) C. Practical Implications Of The Thrifts End D. Changes In Data Collection, With Table E. Meet The New Banks 1. Commentary 2. Table: Major Thrifts That Are Now Bank Holding Companies, Current Name, Former Name, Location, Asset Size IV. Loan Production: 2011, 2012, & 2013 A. Mortgage Originations In 2011: Definitive Data From New HMDA Data 1. SMR Estimate Was Within 3% Of Actual 2. Tables: 2011 Originations Market Details From HMDA a. Mortgage Production By Type Of Loan, # and $ b. Correspondent & Home Improvement Loans c. Application Volume, Approvals, Denials, & Fallout d. Denial Reasons With Purchase & Refi Loan Breakouts B. Loan Originations In Mortgage Production, First Half 2. Likely Mortgage Production, Second Half 3. Home Equity Loan Production Stabilizing In 2012 a. Property Data & Credit Union Data b. New Loans Vs. New Draws On Existing Heloc Lines C. What Happens To Loan Production In 2013? 1. Variables For Forecasting: Analyses Of Likely Outcomes a. Interest Rates b. HARP 2 c. Changes In Owner Equity d. Consumer Confidence e. External Events; The Fiscal Cliff 2. Numeric Loan Production, 2013 Estimates V. The Top Competitors A. Two Banks With Opposite Mortgage Strategies: Wells & BofA B. Sudden Departures: Not Without Precedent C. Home Equity: BofA Still Leads D. Wildly Divergent First Half Mortgage Results By Firm: Wholesale s Role E. Top Independent Mortgage Bankers F. Less Volatility In Home Equity Receivables G. Commentary On Top Loan Servicers H. Top Player Tables 1. Bank & Credit Union Mortgage Producers, 1 st Half 12 & Pct. Chg. 2. Banks Mortgage Production By Retail/Wholesale Channel 3. Top Mortgage Servicers 4. Top Lenders In Home Equity Portfolio Size, 1 st Half 2012 & Pct. Chg 5. Top Home Equity Lenders: Heloc/Closed-End Breakout Data VI. Home Loan Credit Quality A. Bad Underwriting: Now Looks Like A Decade-Long Healing Process B. Foreclosure Rates: Commentary Page 6

7 Outline Of Contents (continued) C. Thrifts Turned Banks: Good & Bad Credit D. Table: Banks Ranked By % Of Owned Plus Serviced Home Loans In Foreclosure, 6/30/2012 & 2011 E. Home Equity Loan Loss Rates 1. E*Trade Tops The List 2. Table: Home Equity Lenders Ranked By 6/12 Net Chargeoff Rates F. Why Home Equity Portfolios Are Taking So Long To Heal 1. Refi Impact Erases The Creditworthy, Leaves The Rest 2. Not Just A Theory: Proof In 2006 Vs Metro Refi Volumes 3. Subprime Risk Is Part Of The Problem 4. Solving The Problem 5. Refinances: Concentrated In High-Credit, Low-Depreciation Cities 6. Table: All U.S. Metro Areas Ranked By Percent Growth In Number Of Mortgage Refinances, VII. The Coming Crash In Mortgage Production A. The Inevitable Crash In Originations B. Two Problems: 1) Sudden & Sharp; 2) Extended Low Production Period C. Refi Dependence & Timing D. A History Of Rate Increases And Production Declines 1. Prior Event #1: Prior Event #2: Prior Event #3: E. No New Options To Combat A Production Decline F. The Long Dry Spell Ahead G. Weak Offsets To The Future Production Negatives H. Measuring Home Owners With Very Low Current Mortgage Rates 1. Table: Distribution Of Current Rates For 43 Million Borrowers I. Short-Term Mortgages, The New Trend 1. Table: Numbers Of Refis With Terms Below 30 Years, J. Measuring All Home Owners And Their Future Likelihood To Refinance 1. Table: Numbers Of Borrowers With Low Rates, Short-Term Loans, Or Balances Below $100,000 K. Silver Linings: Positive Impact On Home Equity Loans L. Local Markets: Those Least Likely To Refinance In The Future 1. Table: Selected Cities, Counts Of Borrowers With Existing Low Rates, Short-Term Loans, & Low Balances VIII. The New 2010 Census Data On Housing A. Why These Numbers Are Important B. Answering Key Questions For Advertising & Office Placement C Data By City: Tables With SMR Commentary 1. Top 100 Metro Areas Ranked By Total Occupied Housing Units 2. Top 100 Metro Areas Ranked By Total Owner-Occupied Housing 3. Top 100 Metro Areas Ranked By Home Ownership Rates 4. Top 100 Metro Areas Ranked By # Of Mortgage Loans 5. Reverse Mortgages: Concentrations Of Older Home Owners 6. First-Timers: Numbers Of Year Old Renters By City Page 7

8 About SMR Home Owner Data A number of vendors sell property data: names and addresses of home owners, data on the mortgages they have, AVM values, and details on the house structure. SMR is among those vendors. There are good reasons why you would want data on all the home owners in the nation or in a region or state. It s hard to prospect for new customers without it and hard to append key data to your own customer records. So, you may wonder, what makes SMR s property data different? The answer is: A lot. To wit: Our coverage is as broad as that of any other vendor. We recently had data on some 91 million owner-occupied and non-owner-occupied homes. SMR s data come with predictive scores and they work. We score some 38 million home owners for their short-term likelihood to get a mortgage refinance or home equity loan. We score more than 50 million households rank-ordering them by their estimated incomes and cash assets. Before you promote a refinance, you need to know if you can offer a home owner a lower rate of interest than he already has. Uniquely among vendors, SMR estimates the borrower s current interest rate when the courthouse documents fail to disclose it (which is most of the time). For internal analysis, you need to know which people are customers of your competitors. But how? Raw property data have separate names for every unit of a company, and dozens of different name spellings for the same outfit. SMR s data also uniquely include a parent company name for each raw-data lender name, making competitive analytics possible. Need to know who qualifies for a HARP 2 refi? They must be people whose loans were sold to Fannie Mae or Freddie Mac and we have identified some 1.4 million of them (people who also have LTVs above 80% and got their loans prior to the HARP 2 deadline). How about CLTV ratios? We have a current estimate, and also a separate LTV for the first-lien mortgage only. Our AVMs (automated valuation model estimates) on the current value of homes are as good as you can find, we believe. This is only a partial list of what makes SMR property data special. If you need the best at a reasonable cost let us know. Contact Jon Varone or Stu Feldstein: , or: Jonathan.Varone@SMRresearch.com; Stuart.Feldstein@SMRresearch.com. Page 8