Maxwell News Digest: New CFPB Nominated, Mortgage Rates Still Historically Low & Surging Loan Applications

This week was historic. 

The United States inaugurated a new president. Policy changes are already moving into place, new leaders are taking command of government agencies, and the mortgage market remains red-hot to start 2021.

Three news stories that caught lending professionals’ eyes this week revolve around Wells Fargo’s continued losses in mortgage market share to nonbank rivals at the end of 2020, Rohit Chopra’s nomination to lead the Consumer Finance Protection Bureau (CFPB), a sharp spike in mortgage rates mid-month, and a surge of new loan applications to kick off the year.

What’s going on at Wells Fargo?

Wells Fargo is the second-largest mortgage lender in the nation, responsible for $53.94 billion in originations last quarter. That’s a pretty staggering number, right? In reality, it’s a 12.5% quarter-over-quarter decline from Q3 2020, when they amassed $61.6 billion in originations. To add to Wells Fargo’s falling numbers, the bank saw a drop in its residential mortgage department. In Q3, they serviced $917 billion in loans, but that number fell to $856 billion in Q4.

What about its rivals?

JPMorgan Chase, one of Wells Fargo’s top rivals, originated $32.5 billion in residential mortgages, representing a 12.5% increase—an inverse of Wells Fargo’s loss. It also grew its correspondent business, contrary to Wells Fargo, from $8.3 billion to $12.4 billion quarter-to-quarter. 

Still, both companies are losing market share to nonbank firms like Rocket Companies and United Wholesale Mortgage (UWM). Rocket’s latest financial report is expected to outperform Wells Fargo significantly, especially after posting a record $89 billion in originations during Q3. UWM, on the other hand, may have surpassed Wells Fargo’s volume in Q4, as they only trailed slightly in Q3 with $54 billion.

Say hello to a new, but veteran leader at the CFPB.

In a flurry of new appointments, President Biden has been busy choosing staff for various agency positions throughout the executive branch. One of his latest picks, Rohit Chopra, commissioner of the Federal Trade Commission (FTC), will be the new leader of the CFPB if confirmed by the Senate.

Chopra is no stranger to the CFPB, as he was formerly assistant director and student loan ombudsman at the agency when it was initially created via the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2011. He was confirmed to the FTC in 2018 by unanimous majority in the Senate after taking an aggressive stance against lawbreaking companies. But his confirmation this time around isn’t certain. There are rumors that Republicans in the Senate could challenge President Biden’s right to fire CFPB Director Kathy Kraninger and subsequently appoint a new head, but with the Democrats taking razor-thin control of the Senate, any efforts will likely be squashed.

What does this mean for you?

Chopra is known as a corporate hawk around Washington. His nomination is a sign that the Biden administration plans to ramp up regulation enforcement and scrutinize unfair business practices. “Commissioner Chopra has long fought for financial markets that are fair for consumers, including student loan borrowers,” said Ashley Harrington, Center for Responsible Lending Federal Agency Director and Senior Council.

“We are encouraged that the CFPB will now return to its mission of protecting people’s finances, which has heightened significance in this economic downturn, and which includes a strong fair lending program. Chopra is the latest in a series of impressive federal agency and department nominees, which includes former Federal Reserve Chair [Janet] Yellen, Congresswoman [Marcia] Fudge, and Connecticut Education Commissioner Cardona. We look forward to working with them all,” said Harrington.

As a mortgage lender, expect a tightening in regulatory practices and increased government oversight.

Are mortgage rates going back up?

Rates have been a bit more volatile, but overall, they remain historically low.

What’s going on then?

After hitting record lows at the beginning of January, rates had been ticking up slightly, hitting their highest point since mid-November. Later this week, however, they began to slide downward again.

According to Freddie Mac, as of yesterday, January 21st, the 30-year fixed-rate average inched down slightly from last week to 2.77%. In the beginning of the year, that rate was 2.65%. This time last year, it was 3.65%. Rates for every mortgage type fell, including the 15-year fixed-rate average, which is now 2.21%, down from 2.23%. Five-year adjustable-rates moved from 3.12% to 2.8%.

Where mortgage rates go from here continues to be in question. Lending experts and financial analysts are closely monitoring the effects of the new presidential administration. With talks of new fiscal stimulus in Washington and now that Democrats control the Senate, Congress, and the presidency, some fear that excess monetary supply will force a jump in inflation. 

“After several days of the sharpest increases in rates in months, Treasury and MBS markets should calm,” said Dick Lepre, Senior Loan Officer at RPM Mortgage. “One-party control of D.C. triggered belief that fiscal stimulus would increase and lead to inflation. Once we have a new occupant in the White House, the discussion is likely to turn to tax increases to address the deficit. Markets will then ponder the effects of those, and volatility will increase as uncertainty increases. The next six months will be trying.”

Earlier dips in rates have led to a flurry of new loan applications, down slightly this week.

You may have felt it yourself. As of last week, loan applications were through the roof, hitting their highest marks in 10 months. 

Data from the Mortgage Bankers Association (MBA) found that applications were up in all sectors of the mortgage market. Perhaps most notably, the refinancing index grew 20% week-over-week (and was 93% higher than the same week last year), accounting for nearly 75% of all new applications.

“The mortgage market got off to a fast start in the first full week of 2021, with both applications to refinance and buy a home solidly increasing on a weekly and annual basis,” said Bob Broeksmit, MBA President and Chief Executive. “With mortgage rates well below 3 percent but expected to rise slowly this year, many homeowners are acting now. Refinancing […] represented three-quarters of all applications.”

Early this week, rising rates resulted in diminishing refinance activity—down about 5% from last week. While rates overall remain low and loan volume, including refis, continues to be strong, economist predict that slowly rising rates (and the fact that many Americans will have refinanced if they’re looking to do so) may result in dampening activity as the year progresses.

Buckle up for another wild year.

It turns out that 2021 is not so different from 2020. We’re still dealing with a pandemic, the mortgage market hasn’t slowed down, and the world still feels chaotic.

However, changes in Washington are shaking things up, and we’re in for a few surprises. Prepare for the unexpected. We’re here to help you along the way.

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