Refinancings drive profitability at nonbank lenders

Core pre-tax income so far in 2019 surpasses the all-year totals for 2017 and 2018, the Moody’s report says

A refinancing boom is driving profitability at nonbank lenders, according to a Moody’s Investors report.

The boost may not last, it said.

“The profitability of rated non-bank mortgage firms perked up in the third quarter, after a weak first half, driven by elevated refinance origination volumes that we expect to continue in the fourth quarter and into 2020,” the report said. “Once the refinance boom plays out, likely over the next 12 to 18 months, the percentage of refinance originations will drop and profitability is likely to weaken again.”

Measuring the nation’s largest nonbank lenders, including Quicken, Freedom, Nationstar and New Residential, pre-tax income in the first three quarters of 2019 surpassed the all-year totals for 2017 and 2018, the Moody’s report said.

“On a core pretax basis, the firms on average exhibited stronger profitability in the first nine months of 2019 than in 2018 because of rising gain on sale margins and elevated origination volumes resulting from declining interest rates,” the report said. “With the stabilization of interest rates in the fourth quarter, we expect the refinance boom and improved core profitability to continue into 2020.”

Low mortgage rates have driven refinancings to the highest level since 2016, according to a Fannie Mae forecast. The refinancing share of U.S. mortgage lending probably will rise to 47% in the current quarter, according to Fannie Mae. That would be the highest since 2016’s fourth quarter when it was 51%, according to Freddie Mac data.

Total mortgage originations, including purchase loans and refinancings, probably will total $2.15 million this year, the highest level since 2007, according to Fannie Mae.

The average U.S. rate for a 30-year fixed mortgage probably will be 3.9% this year, Fannie Mae said. That would be the lowest since 2016 when it was 3.65%, according to Freddie Mac data.

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